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Latin stocks plummet again on Argentina's move

October 23, 2008|Patrick J. McDonnell; Chris Kraul | McDonnell and Kraul are Times staff writers.

BUENOS AIRES, — Argentina's incendiary new plan to nationalize billions of dollars in private pension funds spooked already jittery investors Wednesday and helped spark the second consecutive day of double-digit percentage declines in stock markets.

The new doubts about Argentina come as fears of a global recession have pummeled Latin American stocks, bonds and currencies. Many people are concerned that the relative prosperity and brisk growth of recent years may be over.

The Bovespa index in Brazil, Latin America's largest economy, tumbled 10.18% on Wednesday, as the Brazilian currency, the real, continued to fall against the U.S. dollar.

Argentina's benchmark Merval index fell as much as 17.2% Wednesday before recovering late in the afternoon and posting a decline of 10.11%. That followed a 10.99% drop Tuesday, on word of President Cristina Fernandez de Kirchner's plan to nationalize some $30 billion in private pensions.

The two-day plunge was the sharpest dive since a 16% drop in May 2004, when Argentina was still suffering the aftereffects of the nation's 2001-02 financial collapse and loan default.

Argentina's economy has rebounded strongly since then and has grown at an 8% annual clip in recent years. The nation now boasts a reported $47 billion in reserves, and officials have dismissed fears of another default.

But critics here and abroad are alarmed that the government may view the pension funds as a replacement for declining tax revenue from exports of soybeans and other commodities, a major income source.

Soybeans have lost almost 50% of their value since record-high prices in July.

Some analysts have estimated that the fall in soybean prices alone could cost Argentina $6 billion in export fees and taxes next year. Argentina and Brazil are among the world's top soybean exporters.

A leading Argentine opposition politician, Elisa Carrio, accused the government of seeking to "plunder pensioners' funds" and use the money "to pay off debts or to amass a war chest for elections," referring to next year's congressional balloting.

Election years typically bring an upswing in government spending on social and infrastructure projects.

Fernandez denied that the planned pension takeover was politically motivated. The move, she said, was meant to shield pension holders, whose portfolios have suffered heavy losses lately.

"In an international context where most countries are adopting policies to protect banks, we are protecting retirees and workers," she said.

Under the government plan, which must be approved by Congress, about 9.5 million Argentines in private pension programs would be moved to the state-run social security agency.

Most retirees are already enrolled in the state plan. Officials say retirees moved to the government program will get the same benefits as under the private plan.

But the tumbling stock market here underscored the widespread wariness.

"Investors are deeply concerned with the nationalization of the pension fund industry and the growing discretion and reach of the public sector in the economy," said Alberto Ramos, a South American specialist at Goldman Sachs in New York.

The declines in stock values, commodity prices and currencies in Latin America are attributable to "a lot of things acting together," said Roberto Padovani, an investment strategist with WestLB in Sao Paulo.

Specifically, he cited a global move toward the dollar, a broad fear of recession, "and how people are looking at emerging markets as scary."

Other Latin American stock markets finished down Wednesday, despite late rallies.

Mexico's IPC dropped 7.01%, Chile's IPSA declined 5.90%, and Colombia's main index declined 4.88%.


Andres D'Alessandro of The Times' Buenos Aires bureau contributed to this report.

Patrick J. McDonnell, reporting from Buenos Aires

Chris Kraul, reporting from Bogota, Colombia

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