So, over $29bn of Argentine civic savings are to be used as a funding kitty for the populist antics of President Cristina Kirchner. This has been dressed up as an anti-corruption and efficiency move. Aren’t they always?
Argentine sovereign debt was trading at 29 cents on the dollar today, pushing the yield to 25pc. Tempted?
Credit Default Swaps on Argentine bonds reached 2,900. Do we have a Latin Iceland on our hands, but with 100 times the population? Or several, Pakistan, Ukraine, Hungary? …… Switzerland? Australia? Britain?
The funds being targeted are known as AFJPs or retirement accounts, but how long will it now be before Mrs Kirchner cracks down on the entire $97bn pool of private pensions? There are a lot of much-needed hard currency assets in those portfolios.
“A state takeover of pensions creates all kinds of doubts and throws into relief the extreme financing needs of the government next year,” said Jorge Alberti, from ElAccionista.com
Needless to say, the Kirchner government (part II) is unable to raise any money on the global markets at a tolerable price.
Investors have already been burned by her stealth default on Argentina’s index linked bonds. This was achieved by sacking the head of the statistics office and rigging the inflation data (by 20pc annually, or so.)
Frankly, I am a little surprised that Argentina’s 2001 default – the biggest in history – was not a severe enough burning in itself for investors. But political risk seems to be a blind spot for some asset managers. And then there was the great agro-boom of 2005-2007 so all was forgiven, until commodities went into free-fall in May.
President Kirchner has been eyeing the pension pool for some time. Last year she pushed through new rules forcing them to invest more money inside the country – always a warning signal.
My fear is that governments in the US, Britain, and Europe will display similar reflexes. Indeed, they have already done so. The forced-feeding of banks with fresh capital – whether they want it or not – and the seizure of the Fannie/Freddie mortgage giants before they were in fact in trouble (in order to prevent a Chinese buying strike of US bonds and prevent a spike in US mortgage rates), shows that private property can be co-opted – or eliminated – with little due process if that is required to serve the collective welfare. This is a slippery slope. I hope Paulson, Darling, and Lagarde tread with great care. I do not expect Steinbruck to tread with any care.
The Merval index of stocks in Buenos Aires is down 12.6pc as I write. Telecom Argentina took it badly (-25pc), so did Grupo Financiero Galicia (-13pc) and Banco Frances (-20pc).