What Argentina can learn from Argentina

Just a few weeks ago, Argentina nationalized its private pension system. This kind of action is not without precedent - Argentina froze bank deposits in 2001. The result? According to a paper from the World Bank on The Unfolding Crisis: Implications for Financial Systems and Their Oversight:

...the freezing of deposits in Argentina in 2001 was one of the factors contributing to the poor deposit mobilization in the following years (as indicated by the declining ratio of bank deposits to GDP).

The chart below shows Bank deposits as a % of GDP; the difference between Argentina and the average of middle-income countries is quite substantial. Good luck to any effort at rebuilding private pensions after the current financial crisis has passed! 

Update: The Economist this week reports on the nationalization of pensions. They don't seem too convinced of the wisdom of the move (although one must admit Argentina faces difficult choices):

The pension nationalisation puts the state in charge of assets totalling $23 billion, rising by $4.5 billion a year in new contributions. Ms Fernández now plans to spend a chunk of them. On November 25th she announced a plan to channel some of the funds into a $21 billion public-works programme aimed at keeping economic growth at over 4% next year.

If this works it should help Ms Fernández to shore up support among local politicians and the voters before a mid-term election next October. Those in the opposition who backed the pension nationalisation may come to regret it. And future pensioners may find their money has disappeared into holes in the ground.