INFOBAE, mircoles 1 de octubre de 2003

Argentina moves to tighten rivate ension !und rules

Argentina's government is planning an imminent shake-up of the country's private pension funds in a move that is
likely to affect more than a quarter of the country's population.

According to ministers, the plan will introduce stricter controls over the private funds. A government decree would
force the funds to sever links that connect their management and staff to banks, for example. Six of the ! funds are
owned by banks, and in almost all cases the funds and the banks share the same management.

"he government also wants to force the funds, known as A#$%s, to record all conversations and documents about
their investment decisions and to store them for at least one year. "he idea, according to government officials, is to
keep a closer eye on how fund managers decide to invest their members' money.

&"he current system has weaknesses that need to be corrected,& said Alberto #ern'nde(, the cabinet chief, this
week.

)any suspect %resident *+stor ,irchner wants to re-orientate the private fully funded system, which was set up in
--. as part of a series of structural reforms, back towards a pay-as-you-go regime in which the state plays a bigger
role.

As a first step in that process, the government is studying the possibility of allowing Argentines who currently
contribute to a private fund to re/oin the public system.

&0e have to give the worker who opted for the fully funded system the chance to return to the pay-as-you-go
system,& *oem 1ial, the government's employment secretary, said this week.

"he shake-up, which could be announced as early as this week, comes amid increasing tension between the
government and the A#$%s over the administration's proposals to restructure almost 233bn 4567bn, 873bn9 of debt
that Argentina defaulted on in :ecember !33.

;n :ubai last week, 1oberto <avagna, the economy minister, said Argentina would seek a reduction of about => per
cent on the nominal value of that debt.
About > per cent of the debt to be restructured is held by the country's pension funds, the bulk of which are owned
by international banks, including ?itibank of the @S, ASB? of Britain and BBCA and BS?A of Spain. "he amount is
equivalent to more than =3 per cent of the funds' entire portfolios.

<ast week, fund managers /oined the international criticism of the restructuring offer. &0e are not going to accept the
government's proposals,& said Aoracio ?anestri, executive director of the @niDn de A#$%s, the industry body.

;n response, the government has all but declared war on the private funds. <ast week )r <avagna accused the funds'
mangers of being &inept& and even said that many contributors could sue them for poor management.

"he government says fund managers were irresponsible to have invested so heavily in government debt when it was
clear the administration at the time was desperate and that the country was heading for default.

Eet fund managers insist Argentine law left them no alternative but to invest in the bonds. "hey also claim their
government debt should not be included in the forthcoming restructuring because in :ecember !33 :omingo
?avallo, then economy minister, had swapped the bonds for &guaranteed loans& - loans backed by future tax receipts.

A number of analysts see the government's tough reaction as a strategy to deflect anger from contributors over any
losses to their pension savings away from the government and on to the funds.

&Since last year, the government has tried to spread this idea that any losses to individuals stemming from the default
and devaluation of :ecember !33 are the fault of the private banks and the international community in general,& said
#ernando *ava/as, chief economist of #iel, a Buenos Aires-based think-tank. &;t is a smokescreen.&

Aowever, )r *ava/as also points out that the government has an important additional incentive in trying to re-
orientate the system back to a pay-as-you-go regime.

?urrently, the government has to plug a fiscal hole of about 3bn pesos 42F..bn, 5!.-bn, 8!bn9 a year that results
from switching to a fully funded system and other reforms. By moving back to a pay-as-you-go system, argues )r
*ava/as, the government in effect would be able to draw on pensions payments to plug the gap.

"hat would prove handy given Argentina's newly acquired commitment to the ;nternational )onetary #und to reach a
primary fiscal surplus next year equivalent to F per cent of gross domestic product and to maintain the upward trend.