The president described the private pension funds as "plundering," when she made the announcement in the National Security System Administration (ANSES), which will absorb the personal accounts if a draft law introduced by the government is passed.

The head of ANSES, Amado Boudou, said the initiative would "put an end to the failed experiment" of the private pension funds, and added that to maintain the "illusion" of private pension funds, the state pays 4.0 billion pesos (1.3 billion dollars) a year to top up the monthly pension payments of retirees with private accounts.

Active workers and pensioners covered by the private funds will not suffer a drop in their monthly payments when the private system is taken over by ANSES, said Boudou.

The 1994 reform, which created a mixed public and private pension system, was part of a wave of privatisations in Latin America that encompassed numerous public enterprises as well as pension systems. There are currently 11 countries in the region with privately administered pension funds, including several, like Chile and Mexico, that completely replaced the public system.

Other countries have maintained their social security systems, but with some changes. Brazil, for instance, introduced reforms in 2002 that allow workers, who make obligatory contributions to the social security system, to also make payments into personal accounts if they chose to do so.

Argentina is seeking a system similar to Brazil’s, under which workers would make mandatory payments into the social security system but would also have the option of making voluntary payments into privately run personal accounts.

Of the 9.5 million people currently covered by the private pension funds, known as AFJPs, only 3.6 million make regular payments, and of the 5.2 million workers enrolled in the social security system, 3.8 million make monthly payments.

The government’s announcement was criticised by the AFJPs and by political leaders who say the government’s aim in overhauling the pension system is to find new sources of funding at a time when credit is scarce, in order to service the country’s foreign debt.

The stock market fell nearly nine percent Tuesday ahead of the president’s announcement, and the federal courts ordered the AFJPs to stop trading over the next seven days, in response to a denunciation by the head of the fiscal unit of social security investigations, who pointed to possible fraud after a heavy sell-off of shares by private pension funds Monday.

In an interview with IPS, opposition lawmaker Claudio Lozano said the measure was the "right" step to take because the AFJPs are a "drain" on the public system.

Lozano, an economist who belongs to the Central de Trabajadores Argentinos central workers union, has been calling for the elimination of the private funds for years.

He argued, however, that a tripartite body made up of the state, companies and workers should be set up to administer pensions and ensure that the assets are untouchable, in order to keep them from being used to service the foreign debt -- something that already occurred in December 2001, just prior to the financial system meltdown and the government’s default on the public debt.

Eugenio Semino, an activist for the rights of the elderly, welcomed the proposed overhaul of the system. "The private funds aren’t a social security system, but a system of risk," he said.

But he added that it is "essential" that the funds "must not be freely available," because the risk that they could be used for other purposes "is extremely high."

Today, the AFJPs receive 15 billion pesos (five billion dollars) a year in contributions and administer a total of 33 billion dollars, 55 percent of which are invested in national treasury bonds.

In a report for restricted circulation only, titled "The Unfulfilled Promises of the Capitalisation Regime" (the name given to the partial privatisation of pension funds), ANSES said the drop in the stock market seen in the last few weeks was a "brutal" demonstration that the private system is "inadequate" and has a negative profit margin.

According to figures from the AFJPs, profitability fell 2.2 percent in nominal terms over the last year. But with the growth of inflation, the real loss was closer to 20 percent, said Boudou.

To demonstrate why the private pension system is not viable, the head of ANSES explained that the state actually guarantees minimum monthly payments for tens of thousands of pensioners covered by the private funds.

Of 445,000 people who have retired under the AFJPs, 77 percent receive state funds as well, to ensure that their pensions are above the minimum level.

Thousands of other retirees who have already used up the savings in their personal retirement accounts also receive monthly pension payments from the state.

The commissions charged by the AFJPs for managing and investing the contributions are described as among the highest in the world by a 2002 study carried out for the Argentine government by International Labour Organisation (ILO) experts.

During the administration of Néstor Kirchner (2003-2008), the current president’s husband, improvements to the system were introduced, but no structural modifications.

In 2005, an additional 1.5 million people -- mainly homemakers who had not made social security payments during their working years -- were able to retire with a pension. Ninety-five percent of elderly people in Argentina are now covered by the pension system.

When the AFJPs were created, workers had to choose between the private or public schemes, and those who failed to decide were enrolled in one of the private funds.

In 2007, people who had opted for the private accounts were allowed to switch over to the social security system, and 1.3 million workers did so. But the law passed at the time stipulated that no other workers would be able to do so until 2012. (END/2008)

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