Private Pension Funds Woo Argentine Labor despite Initial Problems, the New Funds Should Provide Workers with More Choices Than the Troubled State System

Article excerpt

A BLITZ of advertising has swept Argentina since early May, as 21 new pension funds try to lure workers away from the state-run system.

This has been possible because the National Congress passed a pension-reform law that took effect early this year.

About 5.5 million workers have until July 1 to decide if they want to sign up with a private company. But the initial shift has been slow as workers remain wary of handing over their money. "People don't trust people here, and you're asking people to give money to a private company for the following 40 years," says Fernando Coccaro, an analyst at Pistrelli Diaz Associates, an arm of United States consulting firm Arthur Andersen.

"There also was bad publicity," Mr. Coccaro says, that hampered the start up. It included last month's resignation of three top officials in the government agency serving as a pension-fund watchdog. Workers also were upset with a lack of information about the system and a requirement - now dropped - that they couldn't return to the state system.

While it's difficult to pin down numbers, the 21 funds have drawn about 500,000 people. Meanwhile, companies have spent close to $100 million on marketing.

Despite its faltering, many analysts say the new pension network is a positive step. Problem-ridden state system

The state system has had many problems, from workers who haven't paid into it to officials who siphoned off funds. After decades of contributions, many retirees are collecting pensions of only $150 a month. Last year, the government was forced to wait for proceeds from the sale of Yacimientos Petroliseros Fiscales, the state oil company, before it could retire a multimillion-dollar debt to pensioners.

The private system's major contribution will be creating a financial option for future retirees.

The economy and its capital markets will be the most immediate beneficiary of the private pension funds. Once the system is running (probably not for another year), it is expected to collect about $2.5 billion annually. At least 90 percent of the capital from the pension funds must stay in Argentina. Therefore, analysts say, the system could fuel development of Argentina's capital markets by creating mortgage-backed securities, securitized loans, and other investment vehicles that now don't exist.

The new funds also will give the country an alternative to foreign capital, especially if interest rates abroad go up and inflows of foreign capital decrease.

The pension funds are "a positive development for the country despite the beginning problems," says Timothy Gibbs, president of Buenos Aires Capital Partners investment bank. …