Social insecurity

The government of Argentina wants to nationalize its private pension funds:

The government said the takeover of the private system, created as an option to state pension funds in 1994, aimed to protect investors from losses due to the global market turmoil. But economists said the underlying motive would be to provide the government with about $5 billon in annual pension contributions that it needs to plug a gap in financing next year and avert a second debt default.

The measure would require the approval of Congress, where the governing Peronist party has a majority. Opposition leaders vowed to contest the proposal. "In the current context, the government measures aren't designed to better the retirement system, but rather to plunder the funds of the retirees and pay the bills," said opposition leader Elisa Carrió.

Meanwhile, one pension-fund head suggested that contributors inundate the government with lawsuits.

The move comes amid a sharp decline in agrarian commodity prices that Argentina has counted on to pay its debts and fuel growth. Coupled with unchecked government spending, the revenue decline has created a gap of around $10 billion to $11 billion in Argentina's debt service requirements by the end of next year, according to Buenos Aires economist Aldo Abram. Mr. Abram said the pension takeover would help the government close about half the gap, while the rest could be obtained from a state-run bank or by dipping into currency reserves. "It's clearly confiscatory," Mr. Abram said of the government proposal.

In theory, the advantage of government pensions over private ones is that tax revenues fluctuate by less than stock prices.  But tax revenues can fall by quite a lot during a recession, which is of course the worst time to raise taxes.  If the government has trouble borrowing, as Argentina's does, the national pension scheme gets into deep, deep trouble.  If Argentina can't plug its revenue hole now, what reason is there to think that they will be able to pay off pension claims?