Holy moly, look at the Merval get dumped

And when I say big dump, I mean big dump

And it's also infecting the Spanish exchange, as the IBEX is down 8%. This morning trading in Repsol (REP) (super-exposed to Argentina via YPF) was suspended when it dropped 10%.

The Argentina Merval dropped another 12% today as the rush for the door continues. Bonds have also dropped like a stone again (toldya it was only for the brave) though I have to say this now is definitely overdone; after all, you can agree or disagree with the AFJP nationalization move, but what it certainly does do is guarantee that Argentina has the money to service is debt over the next few years. Argentina vigent bonds are now trading very close to the pre-2002 defaulted bonds level....and that's plain weird (why? Cos the non defaulted bonds get 20+% interest rate tields paid on them).

To wrap up, FWIW here's part of a mail I sent to A.N. Other yesterday. One of the subjects in question in the mail exchange (with a smart dude, I'll add) was the Argentina AFJP move and how it might affect wider things, and here's wot your humble servant writ:

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The Argentine move will be given the shock'n'horror treatment by the North. Argentina doesn't care that much what the rest of the world thinks. This Kirchner move is straight out of the Peron playbook and will be accepted (with suspicions) by the locals. The bonds are selling off badly today (and therefore the merval) but the market is very much internally driven...there's not much foreign capital inside Argentina these days anyway. When the music stops the bonds will quietly revalue, as at least in the short term there's not much problem with debt servicing now. By taking over the AFJP they save 3.5Bn in interest payments and they retire plenty of paper debt at the same time. I think it's good for $8Bn in direct savings per year. The longer-term future is much less happy though, esp for Argentine pensioners who will be royally screwed by this move 15 years down the line.

What it does do is cast a very bad light on business/miners wishing to set up in Argentina: AQI, XRC, etc etc. FDI will be very, very leery about exposing itself to the Kirchner gov't from now on. Not so bad for the producing miners (MAI.to HOC etc).

I could help but notice how Roberto Lavagna has been semi-offered a post in Uruguay's Finmin this week. Very symbolic, and noteworthy how Uruguay has taken a different and altogether better economic path than Argentina this decade without turning its back on the social wellbeing of its citizens. Uruguay has been the quiet achiever down here and deserves a lot of credit.

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Reactions to the Argentina AFJP nationalization move

At this report linked here, Critica has brought together the reactions of voices worth listening to, and from all parts of the political and economic spectrum. It's a good note, and between them they capture the feeling on the street. The truth is mixed up somewhere between these views, so i've taken the time out to translate the quotes. FWIW I personally think Mondino has got the right view of this. Here we go:

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Hugo Moyano, General Secretary of the main CGT union: The change in the AFJP is one of the best measures (announced by the gov't). I believe that we're not wrong when we call (the AFJPS) one of the scams imposed on Argentinians. Once and for all, these deals have to disappear and then start to build a serious pensions system. Only the State can guarantee a pension for all workers.

Eduardo Mondino, Defender of the People (ombudsman): Transferring these funds to the ANSeS (the state pensions body) is putting the fox in charge of the henhouse. The transfer has to be by consensus and with the participation of all citizens that have contributed all these years. Congress should establish a control mechanism to oversee and limit the use of these funds. The AFJPs have shown themselves to be ineffective, but I don't want my funds looked after by (head of ANSeS Amado) Boudou who can now do whatever he wants with them.

Claudio Lozano, member of parliament: This implies the granting of solidity to the Argentine state and puts us in better conditions to face the (world financial) crisis. We are happy that the gov't has looked inthis direction. We are sorry that once again the opportunity has been lost of forging a parliamentary unity with content and we hope that this decision does not have the sole intention of getting money to pay the public debt, but also that it has the vision of improving the situationof our pensioners.

Elisa Carrió, opposition leader (left-leaning): Out of the present context it can be seen as a worthy initiative, but in the present national and international context in which we live this is a money grab. This has already happened at ANSeS. We saw that free-placement of pensions was a con and that they do not want a real pension increase for pensioners but want to use this money to pay debt or add to national funds for next year."

María América González, member of parliament: The private pensions system doesn't work, but we must control the use of funds. The AFJP system is not a guaranteed pension scheme but bourse capitalization without profits not guarantees. The AFJPs have made U$12Bn in commissions since 1994. It's difficult to be in favor or against (this move). As perhaps the AFJPs have 70% of funds invested in treasury bills and bonds that nobody capitalizes and is paid by the state. AFJPs never lose.

Miguel Kiguel, economist, former Finance Secretary: It has a positive effect becasue there will be more funds to pay debt. The most worrying is that they change the rules from oone day to the next without the necessary consulting process. Today it's the AFJP and tomorrow who? Why can't this be done via a wider discussion? It still has to pass through Congress and I don't know what decisions they'll make there.

Argentina to nationalize its pensions: bye bye AFJPs

Wow, this one is big, big news, and it explains why Kirchnerite politicos have been taking potshots at Veep Cobos in the last few days, too. This one has to get past Congress.

Here's the link to the La Nacion story in Spanish, and here's the Bloomberg take in English. No wonder the bonds dropped like a stone today. Argentina has just officially re-joined the ranks of "international finance pariah" (though after watching the example set by the USA, it's debatable whether that's a good or bad thing).