Th president of Argentina proposed a nationalization of the private pension system to help cover the needs of the government from the fall in revenue associated with a decline in commodity export revenue. Bond yields have exploded and the stock market has tanked in response to this effort to stop a second default this decade. The currency has already been hurt from the international credit crisis.
The Argentine economy has not done well recently. CPI is above 8% and unemployment is at the same level. Consumer confidence has fallen to a five year low before this event even though real growth has been steady above 7%. Construction activity and shop sales have fallen below recent averages. The current account has been slipping fast and the desire to invest in the country will be even further eroded.
The plan tells investors the extremes that may occur once the move to nationalization starts. The nationalization of private pension plans which were started in the early 1990's will reduce the government deficit, but any short-term gains will destroy savings alternatives. his should be a warning sign for citizens in other countries of what can happen if government intervention gets out of hand.
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