Mr. Lavagna's statements reflects the public's long-running disgust for the AFJPs, which are accused of exacting exorbitant fees from the workers they serve only to turn the assets back over to the government in the form of debt purchases. The AFJPs charge average fees of 2.25% of workers' salaries, while payroll deductions were originally 11% and later reduced to 6%. In other words, the AFJPs' fees take $2 to $5 out of every $10 deducted from affiliate paychecks. Since inception in 1994, the AFJPs have collected 25 billion pesos in fees, while workers have 45 billion pesos in total assets, according to the Uni%F3;n de AFJP, which notes that the fees — which cover early-death and disability insurance premiums for workers — will drop considerably over time as a percentage of total assets.
As for Mr. Lavagna's claims of mismanaged investments, the AFJPs point out that they had little chance to diversify away from Argentine debt since the launch of the system. The local stock market is highly illiquid, there have been very few corporate-debt issues, and the regulatory process for approving trusts and securitized notes has been very tedious because of understaffing at regulatory agencies. On top of that, the cap on international investments has historically been 10%.
But in the months leading up to the default, as noted by Daniel Marcu, executive director of Towers Perrin Marcu y Asociados, Buenos Aires, the AFJPs were obligated by then-Finance Minister Domingo Cavallo to sell off CD, mutual fund and equity investments and buy additional government obligations. In fact, during the 12 months prior to the default, virtually all new flows from affiliates went straight to the government, based on an agreement between the finance ministry and the AFJP association. According to Mr. Canestri, the AFJPs acceded to this arrangement in order to make a "patriotic contribution" and keep the government solvent when international funding dried up.
Mr. Marcu stressed that the least painful approach for AFJP affiliates and the government would be for the government to accept the proposal of the Uni%F3;n de AFJP. "The worst scenario is for a large part of the portfolio to be valued at 25% of face value," he said, adding that he thinks there is a good chance the government will accept the proposal.