Playing the Victim

May 26, 2004

Argentina's private retirement funds may be impacted less by the government's default than many think. That's good news for pensioners.

Incredible as it may seem, Argentina's shell-shocked private pension funds could well survive the government's December 2001 default in relatively good shape, even though their original holding of $15 billion in public bonds has not paid a cent in interest and has lost 70% of its value since then.

In the months prior to the default, as confusion and panic reigned in Buenos Aires, it seemed the funds were doomed. Portfolio managers at Argentina's private pension funds - among the biggest holders of government bonds - met every day to try and make sense of the unfolding disaster. "It was total confusion," recalls one manager. "We would get together every day and guess what would happen next. It was almost impossible to guess the next move. Everyone was improvising." The default brought in its train a 70% devaluation, destruction of the banking system and the worst collapse in Argentina's checkered economic...

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