02/11/2008 07:20
Buenos Aires Herald - Nota - Otros temas - Pág.10
Is this their idea of fund?

>The pension reform vote will be a defining moment

How much is a dollar worth? How much is a pension fund worth? A dollar is worth a dollar. A pension fund is worth what's in it. Yeah, right - if it were only that simple. A couple of weeks back a dollar was worth 3.07 pesos. Now it is worth 3.40 pesos. Have a private pension fund? Its worth is now a matter of national debate. A top federal government official told the Lower House of Congress on Wednesday that the private pension funds (known as AFJPs) hold about 74 billion pesos (23 billion dollars).
Amado Boudou, the head of the state-run social security agency ANSeS, said that a year back those same funds held about 90 billion pesos (30 billion dollars). So there you are - the worth of something seems to change by the minute. Pretty soon the AFJPs could be worth zilch.

President Cristina Fernández de Kirchner sent a bill to Congress last week which will allow the government to take over the private pension funds. If the bill is approved, those 23 billion dollars will be pocketed by ANSeS. People on private pension funds will be moved to the state-run shareout system.
The President, speaking at the Ibero-American summit in El Salvador on Wednesday, said the bill does not amount to the nationalization of the private pension system. The state, according to the President, will "manage" the funds. But to much of the rest of the world the AFJPs are being nationalized.
Nationalization - now there's a clunky word. The markets don't like that word one hit. But Wall Street, as you might have well noticed, has taken a beating.

The drastic reform, if you ask the government, is needed because the AFJPs are in such a bad shape that they can't pay their clients' pension. It's so easy to get bogged down in the technicalities of this issue. Legal experts seem to be on television practically all day explaining how this will affect your pension. But who wants to hear it? Not Flisa Car 66, the head of the centrist Civic Coalition. The issue, Carrió has said, is not the reform itself but the financial clout it will grant the President and her husband Néstor Kirchner, the chairman of the ruling Peronist party. State-run pension funds have been ransacked in the past and they will be ransacked again, according to Carrió. The federal government needs the extra cash desperately to service debt next year to the tune of 12 billion dollars, Carrió has said. The President and her ministers have chortled at the accusation.

Boudou and Labour Minister Carlos Tomada appeared before the Lower House's Pension and Budget committees to explain the bill. Congress is controlled by the ruling party (the Peronist-led Victory Front). But Congress has also been unpredictable since Vice-President Julio Cobos cast a decisive tie-breaking vote against a government-sponsored export duty hike bill in the Upper House on July 17.
Eight Peronist senators voted against the bill, which was fiercely opposed by the farmers, in the Senate. It was practically like handing down the President a no-confidence vote. Fernández de Kirchner was against the ropes - and all because of her Vice-President's vote. Fernández de Kirchner and Cobos are no longer on speaking terms and are political rivals.

So forget all the technical talk about AFJPs. Here's the question: is there an outside chance the ruling party can lose this vote in Congress? The pension reform bill is scheduled to be cleared by the Lower House committees on Tuesday. It will lie up for debate in a floor session of the Lower I-louse on Thursday. The ruling party is likely to pass the bill. It will then move to the Senate where anything can happen.

The bill's approval would be a key political victory for the Kirchners. The 72-seat Senate is technically controlled by the ruling party, yes. But senators, especially Peronists ones, in reality represent their provinces and the provincial governors. The Kirchners are asking Congress to grant them more money - 23 billion dollars plus an extra four billion dollars a year in pri vate pension funds contribution. More money means more political power. The political fate of the Kirchners thus seems to lie squarely in the hands of the Peronist provincial governors and their senators.

The 257-seat Lower I-louse approved the export duty bill in July. It is likely to also approve the pension takeover bill. TheVictory Front holds 127 seats in the Lower House. Other pro-government parties hold 20 seats. The bill is opposed by the Civic Coalition (18 seats), the PRO centre-right coalition (ten seats plus six provincial party seats) and the Radical Party (28 seats).

Radical Party lawmakers have said they back the idea of taking over the private pension funds. But the government is rushing the parliamentary debate to grab the money, according to the Radicals.
Yet nine lawmakers of a centreleft opposition party, SI, beg to disagree. They have said they could back the bill if amendments are introduced to specify what the funds will be used for. Another leftist opposition lawmaker, economist Claudio Lozano, has said he is seriously thinking about voting in favour of the takeover. Lozano has said that the chance of a state takeover simply sounds too good to be true for a leftist - no matter what the federal government plans to do with the (tough.)

The nine SI lawmakers once belonged to Carrió's party. But they have since bolted Carrió's party accusing her of shifting too far centre. SI's approval of the bill would be politically humiliating for Carrió, who came second behind the President in last year's presidential elections. Her former allies accuse Carrió of once hacking the staterun pension system and only opposing the reform because it is sponsored by the Kirchners.

The Radical Party is tabling its own pension takeover bill. But Carrió has flatly rejected any talk of a takeover. Carrió, speaking at a press conference in Congress on Thursday, said the issue was whether the Kirchners "and their gang of thieves" will get to lay their hands on the AFJPs cash. Continued from Page 10 Carrió angrily declared that Central Bank president Martin Redrado "says in private that Kirchner is insane." Hundreds of angry AFJP employees have staged loud demonstration outside Congress against the reforms. But opposition to the bill has yet to gather the kind of steam that the farm protest had. Alfredo De Angeli, the fiery farm rebellion leader from Entre Ríos province, joined a demonstration on Tuesday. But will it be enough to twist the arni of Congress? Not yet. But the battle is not over.

The markets are jittery and rumours are swirling. There is speculation that the head of the Central Bank will resign.The speculation will only be quashed if Congress approves the pension reform. The President last week warned that lobbies will try to pressure lawmakers into voting against the bill.
The federal government is also under extreme pressure from the business and farm leaders to devalue the peso. Yet the Central Bank has said it will not allow the peso to float freely in times of political uncertainty.

The President's husband report edly makes all the major economic calls right now. Kirchner was reportedly on the phone to Redrado on Wednesday when a dollar was worth 3.44 pesos. He reportedly told Redrado to offer markets one billion dollars in Central Bank reserves to strengthen the peso. A dollar was worth 3.39 pesos when trading closed on Wednesday. Central Bank reserves currently stand at nearly 47 billion dollars. A Central Bank executive, speaking at the IDEA business forum in Mar del Plata, said on Friday that reserves will continue be used to "manage' the exchange rate. The Central Bank spent a further 400 million dollars to halt another run on the peso.
By championing the pension takeover the Kirchners have bought themselves a whole lot of political uncertainty.

Many business leaders, still embracing free-market ideas, don't like the idea of a nationalization bill one hit. AEA, the association of Argentine business leaders, said the private pension funds were a key player in capital markets. ALA urged the government to respect private property. The closing statement issued by IDEA struck a similar chord. But these are not bullish times for private companies. Argentine companies have lost value due to the global bust. You lose value, you lose clout. Will the huffing and puffing of the business community be enough of a lobby to halt the pension reform bill in its tracks? Neoconservatism, the President declared at the Ibero-American summit, is dead. A new world order, with the state doing a lot of regulating, is being born.

In the very short-term the global crisis has given the President, which according to polls has the backing of only 30 percent of the public, an unexpected chance to regain the political initiative. Local problems like inflation have been dwarfed by the dire news coming from the world's pow erhouses. The President is scheduled to attend the G20 summit called by President George Bush for November 15 in Washington.
Fernández'de Kirchner met in El Salvadorwith President José Luis Rodríguez Zapatero of Spain on Wednesday. The President "explained" the pension reform to Zapatero. The two leaders also discussed the planned state takeover of Aerolíneas Argentinas, which is owned by the Spanish company Marsans.

'I'he government and Marsans have yet to agree on a price for Aerolíneas, which according Congress is massively in debt and is worth nothing. Congress will have the last word in any agreement between the government and Marsans. Spanish banks also manage some AFJPs and have expressed concern about the takeover. Rodriguez Zapatero said on Friday he "trusts" the Argentine government will find a solution for Aerolfneas Argentinas.

Presumably the "new world order" will mean not having to worry too much about what the International Monetary Fund and other lending agencies have to say. Local business leaders and the IMF have lost much of their clout and credibility. But they are still asking difficult questions.

The IMF said on Wednesday that Argentina does not qualify for a new fund for emerging markets in need of cash. Argentina, IMF head Dominique Strauss-Kahn said, does not have a strong enough track record to qualify for the new soft loans. The government, which cancelled its debt with the IMP early in 2006, made no formal request for fresh IMP oney. The Kirchners have refused to accept IMF monitoring of the economy. Relations with the lender are frosty.

The US Federal Reserve included Brazil and Mexico in a list of countries to he offered a new line of credit of up to 30 billion dollars. Argentina was not on the list.
Standard & Poor's downgraded Argentina's debt ratings on Friday citing the "deteriorating" economic and political climate. Sovereign paper is in junk bond territory, but most private economists say that a default is not imminent. Argentina, according to S&P, is in the same financial league with Bolivia, Ecuador and Paraguay.

What S&P has to say about Argentina's future is irrelevant if you ask the Economy Ministry.
Ministry sources said on Friday that the S&P report is "unfounded" because Argentina has been growing for the last five years and has hefty reserves in the Central Bank.

International credit rating agencies, the ministry said, failed to predict capitalism's calamitous crack. So why should Argentina pay any attention? The ministry could be right. But then again it could be wrong.
The country rescheduled its defaulted debt in 2005 when Kirchner was president. But holdouts who refused to accept that swap have sued Argentina in a bid to be awarded more compensation.
A US judge has frozen about two billion dollars held by AFJPs abroad until Thursday at the request of a group of debt swap holdouts. The judge, Thomas Griesa, wants the government to explain what the funds are for (significantly on the same day the Lower House will debate the bill). But a government official has said the AFJPs-not the Fernández de Kirchner administration - must defend their case in the courts. Griesa has frozen the funds but is unlikely to seize them, according to the government. Yet having a US judge in the middle of it all only adds more uncertainty to the situation.

Argentina must service debt over the next three years and talk of default is not going away.
Federal Planning Minister Julio De Vido announced on Friday hefty energy subsidies will he trimmed to save 237 million dollars. The cuts mean a price hike for eight percent of 9.5 million homes in Argentina.
The midterm elections are scheduled for next year and the federal government seems to be scrambling for cash. The Kirchners could use the money saved in subsidies to launch a public works plan in an election year.

The midterm elections are scheduled for 2009 and the political situation is clearly dysfunctional. There is speculation that the Vice-President, in defiance of the ruling party, will field his own slate of congressional candidates next year.

Cobos on Thursday attended a Radical Party rally to mark the 25th anniversary of Raúl Alfonsin's presidential election win in 1983. It was the first election after the military dictatorship of 1976-83. Alfonsin, 81 and ailing from lung surgery, was hailed as "the father of democracy" at the rally. He was unable to attend because his condition was frail.

Cobos was expelled "for life' from the Radical Party after he sided with the Kirchners last year. But Cobos, who according to polls is the most popular politician in the land and a hero to the opposition in general after voting against the government in the Senate. "I am still a Radical," Cobos said. Thursday's tribute to Alfonsin was attended by Carrió, also a former member of the Radical Party.

There is speculation that both Car rió and Cobos-who are rivals-are trying to clinch the backing of the Radical Party, which has lost clout and credibility after the collapse of the Radical-Frepaso Alliance government in 2001 but still has a political machine nationwide.

Kirchner meanwhile addressed a Peronist rally in working-class Greater Buenos Aires in what was his first public defence of the private pensions takeover bill. The President's husband showered praise on Alfonsín. But he blasted the Alliance government (1999-2001) for slashing pensions in a desperate bid to save money. Kirchner, like his wife, insisted that the funds are not "being nationalized, the administrator is being changed." The Kirchners can't afford to lose the election next year in Buenos Aires province, their stronghold ruled by Governor Daniel Scioli. Kirchner himself is reportedly thinking about running for Congress as a candidate in Buenos Aires province. Opposition leaders have warned they could join forces if Kirchner runs. Deputy Felipe Solá, a dissident Peronist who voted against the export duty bill, is one of Kirchner's potential rivals next year. Sold could be endorsed by Cobos and by City of Buenos Aires Mayor Mauricio Macri, the leader of the centre-right coalition PRO.

Crime is a major concern in Greater Buenos Aires. The killing of a man during a robbery last week in San Isidro, a northern district in Greater Buenos Aires, prompted angry demonstrations calling for government action against crime. Scioli, who unlike the Kirchners is originally from a conservative faction of the Peronist party, has reacted by calling for the criminal responsibility age to be lowered to " 12 or 13." Yet ruling party lawmakers on Friday said they will not approve such a law.
The Kirchners, who rarely address the crime issue, have insisted that tougher laws will not solve the crime problem. But they urged judges not "to release criminals from prison." Scioli has rarely dared to differ on policies with the Kirchners.