BUENOS AIRES - The debt-strapped Argentine government is again looking to the country's private pension fund managers to help shore up federal and state financing for 2001 and 2002, and in the process it is effectively closing off funds for outside managers.
Argentina's difficulties in meeting its foreign debt obligations and implementing an IMF-imposed "zero-deficit" annual budget, coupled with an ongoing recession that shows no signs of improvement, is leading the government to consider drastic measures to keep the country afloat. Given its poor CCC+ S&P debt rating, borrowing internationally is virtually off limits because of the high interest rates Argentina would have to pay. That leaves internal sources, such as banks and the privatized pension funds, which manage US$21 billion and receive between $250 million and $300 million a month in new assets.
Since late last year, the government has been tapping the pension funds for financing. Already maxed out on the 50% cap in federal government bonds, the AFJPs bought trusts that packaged yet more government debt after the government in early 2001 bumped up the underused "financial trusts" limit to 20% from 14% (Pensions & Investments, May 28).
In the latest round of intervention, the government this month asked the pension managers to allocate new flows into provincial debt - whose ceiling for AFJP investment was increased to 30% from 15% - and to not renew investments in certificates of deposit or corporate debt when these instruments mature, so these assets too can be targeted at government debt.
As of July 31, the AFJPs were channeling just 4.16% of total assets to provincial bonds, and the volume is markedly decreasing. The latest information available from the AFJP Superintendent, the agency that regulates the AFJPs, indicates the figure had fallen to $867 million, from $1 billion for June. They potentially could invest up to $6.3 billion.
AFJP executives balk
Outside their closed-door meetings with Finance Minister Daniel Marx, top AFJP executives said they are not willing to invest in provincial paper because of its poor prospects of repayment. "I think we would be crossing the line and forgetting our responsibility to our affiliates if we bought (provincial bonds) just to help the government out of the crisis," said one manager, who asked not to be identified.
The managers' initial reactions have caused the government to consider collateralizing tax or royalty revenue to guarantee interest payments of the provincial bonds.
The government's prioritizing of its own obligations has had an impact on third-party managers that distribute their specialty funds to the AFJPs. These managers tend to employ as subadvisers international firms such as Brandes Investment Partners LP, Neuberger Berman and Rotshschild Asset Management, or subsidiaries of foreign managers, such as Schroder Mildesa Investment Management and Compass Group. Between March and August, AFJP assets invested in local equity and balanced mutual funds fell 25%, to $142 million from $189 million.
Carlos Curi, director of BNP-Paribas Asset Management in Argentina, said equity mutual funds' erratic performance of late and their inability to offer returns that compare with high-yielding government debt will make them extremely unpopular with AFJPs over the medium term.
AFJPs rarely invest in fixed-income products through mutual funds. But Mr. Curi noted some banks and other local issuers see opportunities with so-called "enhanced return" trusts. These trusts include securitized vehicles that wrap government debt re-lent to local companies, which use the proceeds for working capital. The trusts pay the AFJPs a premium over the rates they can achieve by investing directly in government debt.
