Argentina to Raid Retirement Savings as Reserves Plunge

Argentina, which is defaulting on its debts, said it will seize $2.3 billion of retirement savings by forcing private pension funds to transfer the money to a state bank in exchange for Treasury bills.

The government targeted savings every worker is required to set aside from their paychecks since the creation of a private pension system in 1994, after the International Monetary Fund withheld a loan.

Economy Minister Domingo Cavallo said the government, which has more than $2 billion of debt due this month, will use the money to pay state pensions and wages.

“For all intents and purposes they are confiscating funds,” said Scott Grannis, who helps manage $1.5 billion of emerging-market debt at Western Asset Management in Pasadena and has sold his Argentine bonds. “They are destroying confidence.”

By dipping into private savings, the government is showing the extent of its desperation after central bank reserves plunged, depositors accelerated withdrawals and the IMF stalled a $1.24-billion payment that was expected this month. The move--a presidential order that replaces deposits with bills that mature in fourth months--may presage a worsening political situation, analysts said.

Workers, already angry at the government for allowing the recession to deepen and unemployment to rise, plan a nationwide strike next week to protest the government’s decision last weekend to limit withdrawals. About 70 members of the truck drivers’ union tossed stones and eggs at the central bank and stock exchange, breaking windows and blocking traffic in an afternoon march.

Union leaders and legislators from most parties have called on Cavallo to resign. The minister said he plans to travel to Washington to meet with IMF officials.

“They’ve done things without even thinking about how it will affect our lives,” said Raul Castro, 64, an accountant, after leaving Banco de Galicia on Avenida de Mayo. “Everyone’s changing their accounts into dollars, but you still can’t get them out of the bank.”

Argentina’s benchmark floating rate bond due 2005 plunged more than 7%. The country’s bonds yield more than any other emerging-market debt in the world, at an average yield spread of about 40 percentage points over U.S. Treasuries, according to a J.P. Morgan Chase & Co. index.

The Merval stock index rose for a third day in four, climbing 10.6% for a gain of 24.5% this week, as some investors bought securities, transferred them abroad and sold them to skirt banking controls, traders said. Other investors bought shares as a hedge against a devaluation, they said.

The peso, which has been pegged one-to-one with the dollar for a decade, fetched 92 cents at private exchange houses such as Banco Piano.