Big Heist in Argentina

[criswkh]

This just in from Bloomberg
Argentina's government is likely to sell stakes now owned by the country's pension funds once it nationalizes the retirement system and Morgan Stanley may remove the country from the emerging-markets index, fund managers said.
I think the key word is "likely".
Bloomberg.com: Worldwide

 

[soulskier]

Can someone explain to a laymen what would happen if this were true?

 

[Fettucini]

I thought the government still had 47 billion usd in reserves, so surely this would avert most of the risk of a default in 2009?

 

[Stanexpat]

Can someone explain to a laymen what would happen if this were true?

I'll try to explain it. What they are talking about is dumping the stocks and bonds that the pension funds hold (these are primarily Argentine stocks and bonds). This will remove a lot of the volume that's currently traded there. The Argentine stock market would be downgraded from emerging market to frontier status. It will make it harder for Argentine companies to raise capital, the amount of new investment in Argentina will be reduced, very bad for future growth, inflation, etc. An article on this follows:

Gulfnews: New index launched for frontier and smaller emerging markets
What the government wants to do is give the retirement savers government bonds to replace their stocks and bonds. My guess is that they will sell the bonds to the savers at a much higher price than what they wold sell for in the real market. Argentine bonds in the market today sell for only about 25 cents on the dollar. If this is what is done the savers will suffer a big loss initially. If you assume there is another default then the loss could increase depending on what's left after the smoke clears. Obviously not a very good deal for savers there.

 

[henryb]

Can someone explain to a laymen what would happen if this were true?

If Argentina is excluded from emerging-markets index, foreign funds that invest into the index will sell shares of Argentinean companies. Rumors alone are damaging, even if will not happen.

I guess significant portion of Arg market is invested into the pension funds. Possibility that Arg government will get control over them and eventually try to sell all their assets may cause a panic sell off tomorrow. (Or may not: it is a purely hypothetical assumption).

When the stocks prices drop enough Mrs K will offer investors to exchange them to government bonds giving them some lucrative incentive, say she will give 2 peso in bonds for 1 peso of stock or something.

What do you think about this scenario?

 

[Napoleon]

Possibility that Arg government will get control over them and eventually try to sell all their assets may cause a panic sell off tomorrow. (Or may not: it is a purely hypothetical assumption).

TOMORROW? (Thursday?) Try TODAY.

And investment watching friend in the US sent me this this afternoon:

Argentina's market dropped 14% today

 

[travellingbum]

According to this article:
FNArena

 

[bigbadwolf]

According to this article:
FNArena

Good article. Yes, the government is going to seize private assets to cover public borrowings. Here is some coverage from the FT:

The calculations behind the decision are simple – if brutally cynical. Argentina needs some $13bn to pay its peso-denominated debts next year. It has been shut out from international capital markets since its $95bn default in 2002 (under President Néstor Kirchner, Fernández’s husband); so no money there. Venezuela’s Hugo Chávez used to be good for a soft loan but now he is running out of money too. So Argentina has instead nabbed the money saved by its citizens in private pensions. More than half of the $30bn these funds control is invested in government bonds. By meeting their interest payments with more bonds, the government could save $3bn, Credit Suisse reckons. Then there is $2.5bn held in cash. Finally there is $4bn in annual pension contributions, which the government plans to earmark as “tax revenues”. That makes about $10bn, almost enough to close the gap.

I would not like to be an Argentinean pensioner (but nor would I like to be a US pensioner).

 

[jedard]

The nationalization of private pension funds.



Here are key elements of the bill.
PRIVATE FUNDS MOVED - The National Social Security Administration state system takes over administration of private pension funds. The state will recognize contributions made to private funds. Pensions will be calculated according to the rules of the state system.
VOLUNTARY CONTRIBUTIONS - Pension savers who made extra contributions to their retirement account can chose to move that amount to the state or keep it in an individual retirement account in a private fund. The private pension fund administrators can continue to handle private accounts for individuals who choose to maintain accounts above and beyond their obligatory state contributions.
STATE PENSIONS - Retired people draw a minimum state pension, which is roughly $100 per month currently, plus 1.5 percent of their average salary of the last 10 years they worked and contributed. Minimums will be adjusted for inflation and other factors two times a year, under current law.
BENEFITS - The state guarantees benefits from the state system will be equal to or better than the current benefits from private pension funds.
CURRENT CONTRIBUTIONS - Monthly contributions will now go into the state system. More than $4 billion a year in contributions is what goes into the private pension system, that will move to the state.
OVERSIGHT - Establishes a bicameral Congressional oversight committee to regularly review the state pension system.
JOBS - Measures will be taken to preserve jobs of people who work at the private pension fund companies.
(Compiled by Fiona Ortiz)

 

[syngirl]

So it seems that to quell the rumours that this is just a big grab by the government to get the 29 billion in cash, out of nowhere last night they issued a statement that there was actually a budget surplus in September. Trying to make us think that they aren't in trouble??? Please. They must have held a proverbial gun to the rep's head who had to go out and state that without either bursting into laughter or tears...

On top of that first thing this morning the government sent the police to AFJP to try and seize any evidence that they are dumping stock (government says that AFJP alone is responsible for the drop yesterday at the bolsa, not the govt announcement). So it seems like the K's are basically trying to drum up a bunch of suspicion about AFJP's activities before this goes to congress. This is a fricking clown show.


If you're not watching TN already, you have to start. The other night on Otra Tema they had the government rep there to answer questions -- one caller phoned in to ask something about AFJP -- the rep actually said "I'm not here to talk about AFJP. AFJP no longer exists, it is a closed subject, we are here to talk about the new programme." Closed subject???? It hasn't even gone to a vote and the government is acting like it's a done deal!

I understand the arguments that say pensions are nationalised in other countries, but we aren't in other countries -- we're in Argentina. A country that already has a reputation for taking money from it's own people and never giving it back. The private system was a joke I know -- 30% of my boyfriend's salary was paid into it, 13% of that was just to cover fees. And on top of that he was never actually able to get any statements from AFJP to tell him how much he had in his pension account. It was a broken system, and I don't know how much I trust it either, but I think I trust it more than the government.