Spain mediates in Argentina turmoil

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The government vows to protect the interests of Spanish companies following Argentina’s move to nationalise the country’s private pension funds.

24 October 2008

MADRID - The Spanish government said Thursday that it is working to protect the interests of Spanish companies in Argentina in the wake of President Cristina Fernández's decision to nationalise the South American country's private pension funds.

The move, under which Fernández's government plans to take control of $29 billion in pension assets, including some managed by Spanish banking groups, has triggered fears of a new debt crisis in Argentina while raising concerns about the legal security of foreign companies operating there.

Spanish officials said Thursday Spain is offering to mediate between the Argentine government and the affected companies in order to reach an agreement. Fernández has defended the controversial plan by saying that she is rescuing pensions from the global market crisis.

Erratic economic policy in Argentina – an editorial by El Pais
The nationalisation of the private pension system in Argentina, which was suddenly announced by President Cristina Fernández de Kirchner this week, is a decision that will entail serious consequences not only for investment in Argentina and the general credibility of its government, but also for the whole Latin American economic area and the Spanish firms operating in it.

On Wednesday, the Buenos Aires stock market plunged sharply (by 10.11 percent), while the Ibex 35 (the benchmark Spanish stock market index of the country's largest companies) suffered its second-biggest drop this year, more than eight percent.

The latter was dragged down due to the blow received by Spanish firms with heavy investments in Argentina and other parts of Latin America, such as Telefónica, Repsol, Banco Santander and Banco Bilbao Vizcaya Argentaria (BBVA).

The markets see the Argentinean nationalisation as an appropriation of the assets of the Retirement and Pension Fund Administrators (AFJP), and they do not believe the official version that it is simply intended to prevent the decapitalisation of these funds.

It is not difficult to reconstruct the political twists and turns that have led to this unusual decision. The Argentinean state is having serious difficulties in meeting the due dates of public debt.

These difficulties are aggravated by the precedents of non-payment of its international commitments, and by an extremely questionable public management. The private funds offer the advantage of substantial assets, which are now added to the contents of the state coffers, and can be used at the government's discretion to cover debts falling due.

This is the prevailing impression in the markets. If the Argentinean government wishes to demonstrate that the nationalisation is principally aimed at guaranteeing the pensions of almost 10 million contributors, it will have to explain the dimensions of the decapitalisation and to what extent it is superior to that of similar private pension funds in other countries of the Latin American region. The total absence, so far, of explanations turns the nationalization into a de facto expropriation.

The nationalisation therefore aggravates the discredit of Argentina in the eyes of international financial institutions, and further darkens the already difficult economic situation in Latin America.

The spread of financial distrust is not likely to stop at Argentina's borders with Brazil and Chile.

This is one of the large-scale potential economic errors that have to be avoided, all the more so amid a serious international crisis, because such an error further erodes confidence in a large sector of world financial assets, exacerbates existing recessions, and condemns the country that commits it to a long period of financial ostracism.

If Argentina is suffering from any kind of decapitalisation, it no doubt lies in the political area, in the deficient management ability on the part of successive Argentinean governments.

[El Pais / S. Gallego-Diaz / Expatica]

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