Halloween arrived early in Argentina this year — in the form of a trick, alas and not a treat.
Oct. 21, Argentina’s government, led by Peronist President Cristina
Fernández de Kirchner and her predecessor, Néstor Kirchner, announced
their intention to expropriate $30 billion held by Argentine citizens
in private pension funds (similar to 401(k) retirement savings
accounts). The Kirchners need the money to refinance old bad debts so
that they can borrow yet more money to keep the country afloat. The
announcement rocked investor confidence in Argentina and sent the
Buenos Aires stock market plunging.
2001 sovereign debt default and 2005 debt restructuring set off a chain
of events leading to this attempted seizure. The Kirchners’s pursuit of
economically disastrous policies and the negative effects of the
default are still being felt today, as shown by Argentina's steadily
declining scores in the annual Index of Economic Freedom, published by
The Heritage Foundation and The Wall Street Journal.
just days after President Kirchner expressed a willingness to repay the
Argentine government’s Paris Club and private bondholder debt, the
announcement of the pension fund nationalization plan clearly signals
an attempt to replenish government coffers. Prices for Argentina’s
soybeans and other agricultural exports have dropped substantially in
recent months, too, so the Kirchners’s attempt to grab private
retirement accounts may also be a way to replace lost revenue from
The Kirchners’s left-wing government has used
revenues from commodities exports to finance the same sort of populist
policies that have kept the Peronist party in power for more than 60
years. It’s a simple but economically destructive formula: wasteful
welfare state handouts, a swollen bureaucracy to redistribute income,
and powerful closed-shop trade unions protected from foreign
competition, all generously lubricated with corruption.
recent Heritage Foundation report on Argentina detailed the rising
inflation rates, sagging climate for investment, and the precarious
financial dependence that Argentina has developed with Venezuelan
strongman Hugo Chavez. These factors led to crises not only in the
economic sector but in the social sector, as demonstrated by this
year’s months-long farmer strikes.
Rule of law,
secure property rights, transparent government, and vigilance against
state corruption are among the most important measurements of freedom
used to calculate the annual ranking of countries in the Index of
Economic Freedom. Argentina's rank plummeted from 19th-freest economy
in the world (out of 156 countries) scored in 1998 to 108th of out 162
countries by 2008. The Kirchners callous disregard for these freedoms
is a classic case of an assault by a leftist-populist regime on the
rights of both Argentine citizens as well as foreign investors and
The country's investment climate
has been damaged. In August and again last month, Standard & Poor's
cut Argentina's foreign-debt rating. It’s now B-minus, on par with
Bolivia and Lebanon and below such countries as Belize and Burkina Faso
— and far behind neighbor and rival Brazil. This lower rating will
raise the cost of borrowing for Argentine businesses and make Argentina
less competitive in the global economy.
economy is sinking into quicksand. Its government has an obligation to
its citizens to reach an agreement with all external creditors so that
it can regain full access to world financial markets. However, it
shouldn’t do so through the theft of those citizens’ private property
in the form of their retirement savings!
leader of the globalized economy and the international financial
institutions that have ensured prosperity for billions of people for
more than 60 years, the United States has a special responsibility to
prevent abuse of that system. It’s imperative that U.S. policymakers
push for an honorable debt repayment plan as a way to strengthen U.S.
relations — not only with Argentina but with all of Latin America.