The American Interest
Analysis by Walter Russell Mead & Staff
Argentina Stiffs Pensioners

Argentina’s pensioners are fighting the government to have their benefits adjusted for inflation, with little success so far. The government has been doing everything it can to avoid paying, and now some 450,000 individual cases are inching through an overloaded court system.

Much of the problem is due to the government’s decision to use the pension fund to pay for other populist projects, as the Economist reports:

In November Mr Bossio responded that the agency had used the “majority” of its funds to provide pensions to people who lacked them altogether, and that it could not afford to help the neediest Argentines if it paid all retroactive claims. [...]

[Kirchner] has since turned ANSES into something of a public slush fund. In the past four years the treasury has sold the agency over $10 billion of bonds at paltry interest rates. The president has used the proceeds to fund popular projects, such as low-income housing, infrastructure and transfers to poor families with children. Meanwhile, in recent years the returns on ANSES’s investment portfolio have lagged behind Argentina’s estimated inflation rate of 25% (the official rate is lower, but is widely known to be doctored).

The U.S. is no stranger to these problems, particularly as politicians try to force pension funds to “invest” in pork barrel projects. Proposals now on the table to reduce the degree to which social security pensions are topped up for inflation will have the effect of transferring money from pensioners back to the government, where it will be used again for whatever purposes politicians want.

What’s needed is an actuarially sound, adequately financed, conservatively invested pension system. Anything else is a gimmick. Unfortunately, there are lots of gimmicks floating around these days.

Published on February 15, 2013 4:05 pm