Saturday, November 22, 2008

Argentina nationalizes pension accounts; will U.S. follow?

In a move discussed here, Argentina passed legislation proposed by President Cristina Kirchner to seize private social security pension accounts held by citizens in order to ease budget pressures on the government. Leaving aside how the account holders felt about it, the markets rendered their own judgment: despite central bank intervention the Argentinean peso fell, and Argentine stock markets declined as well. See this story for more details.

"Social security can't depend on the risks of the financial system and speculation," said Senator Fabian Rios of the ruling Peronist party. Sounds like something we'd hear here in the States. Yet, bear in mind that account holders were previously given incentives to voluntarily turn in their accounts to the government, but they strongly chose with financial risk over political risk. Now, those choices have been overturned.

Leaving aside what this says about Argentina's government – nothing good, in my view – Argentina's move to nationalize pension accounts bears much too close a resemblance to this for my comfort.

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