Argentina's pension system.

The economic crisis in Argentina is affecting the country's pension system. The International Monetary Fund (IMF) withheld a US$1.3 billion loan in December 2001 because it was dissatisfied with the government's progress toward fiscal reform. As the Argentine govern­ ment struggled to avert default on its foreign debt, it undertook a series of emergency measures, including delaying public pension payments and asking the pension funds to swap higher-yielding government bonds for lower-paying longer-term bonds. With deficits rising, tax receipts plummeting, and the recession worsening, Argentina borrowed $2.4 billion in pension fund assets that were held in bank accounts and used those funds to pay public pensions and salaries. Finally, the government imposed capital controls, defaulted on its foreign debt, and in January 2002, devalued its currency. The peso had been pegged to the dollar for more than 10 years. The shift to a floating-rate peso could cause investors and savers to lose a significant amount of money depending on the value of the peso. Although it is too soon to calculate the costs of all of these measures, it is clear that they will impose a burden on the country's pension system. A brief description of the retirement system and some of its problems are needed to better understand the pension funds' current situation. A 1994 reform replaced the ailing pay-as-you-go (PAYGO) system with a mixed public/private one. Participation is mandatory for most employed and self-employed workers. The military and police are covered by separate programs; provincial workers are gradually being incorporated into the national system. The new system has three tiers. The first two are PAYGO: a non-earnings-related basic universal benefit (prestación básica universal, or PBU) based on years of service, and an earnings-related compensation benefit (prestación compensatoria, or PC) for service rendered before July 1994. 1 The third tier offers a choice between a public defined contribution plan and a private individual retirement account. The public alternative benefit (prestación adicional por permanencia, or PAP) is based on earnings after July 1994. 2 The private one is based on individual contributions to a pension fund management company (administradora de fondo de jubilaciones y pensiones, or AFJP) plus accrued interest minus administrative fees. Workers who do not choose between the public and private tiers are automati­ cally placed in the private one. Employers, employees, and the government finance the program. Employers contribute to the public system regardless of which program …