Argentina Taking Control Of Pension Funds To Pay Debts Are We Next?

Here is a warning to us all. The Argentine state is taking control of the country’s privately-managed pension funds in a drastic move to raise cash.

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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.

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