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Saturday, November 29, 2008

Kirchner got THEIR money!

Argentine pension fund money. Reported in The Economist (one of the many scribes this author subscribes to) Mrs. Kirchner secured a law, with over 70% of the Argentine House in support, to nationalize the pension scheme in Argentina. What does this mean for everyone else?

http://www.economist.com/research/articlesBySubject/displayStory.cfm?story_id=12685478&subjectID=987105&fsrc=nwl

The Economist, while it is a revered and well loved magazine of mine, left out come critical information on exactly what did Mrs. Kirchner said, in detail, about the nationalization of pensions in Argentina. But, this article did mention that the fees charged were way too high and, even before it was nationalized, were forced to invest over 55% into public debt.

While it is obvious that Argentina has still not squared off its debt with the IMF and itself, since it defaulted a few years earlier in their economic crisis between 1999-2002. One can only imagine the instability in the markets, with fund managers looking for loose money--like in pensions. In addition, with it being forced into investing into public debt in the first place, the scheme was already nationalized and further nationalization, protects pensioners from third party losses--from either side. If one is not responsible, fully, to the investor, then this up's the likelihood of pension fraud and malfeasance on one side. So, pensioners were faced with a choice, which they really did not have a choice to begin with and that is 1. face marauders in the private market, which was probably bound to happen or 2. face nationalization of the scheme--which was part nationalized in any event. Take your pick, or, better yet, don't...we will pick for you!

The market has reacted unfavourably to the pension grab. Deposits withdrawn and stocks down. This is a blip on the radar screen and fund managers, will go back to lower yields and become accustomed to not having two Ferrari's in the driveway, rather than getting by with one and a jaguar in place of the second.

But, Mrs. Kirchner got her wish. She pulled it off with 70% of the house in favour. Most likely, as the economist said, the money will go to financing the debt of Argentina. But, her primary motives, were not and have not been fully addressed and it is important to grasp the contrasts to why now and why it would be worst later, in her eyes.

Youri

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