Peru to 'Shield' $30 Billion in Pension Funds From Humala, Minister Says

By John Quigley

Peru will seek to toughen laws to prevent presidential front-runner Ollanta Humala from tampering with $30 billion managed by private pension funds should he win next month's election, Finance Minister Ismael Benavides said.

Benavides, in an interview, said he will seek support for the legislation at a Cabinet meeting today "to shield from government interference" the assets managed by units of Peru's Credicorp Ltd (BAP), Spain's Banco Bilbao Vizcaya Argentaria SA, ING Groep NV (INGA) of the Netherlands, and Canada's Bank of Nova Scotia.

The government is concerned that Humala, a one-time ally of Venezuelan President Hugo Chavez, may seek to use the funds' assets to finance public spending if he holds onto a lead in polls and wins next month's runoff vote, Benavides said. Pointing to Argentina's nationalization of about $24 billion in private pensions in 2008, Benavides said the proposed law would prevent the next government from seizing pension assets or forcing fund managers to buy public debt.

"You've seen what happened in Argentina, and we want to avoid that," Benavides, 65, said in an interview in Lima yesterday. "It's a trend, in certain countries that are making a mess of what they are doing."

Humala's campaign platform includes proposals to force Peruvians to pay into a state pension. He also pledges introducing a free retirement plan for people 65 or older.

'Significant Step'
Humala said April 26 the retirement plan will be financed by higher tax revenue and not assets from private pension funds, which he vowed not to touch.

Benavides said existing legislation protecting private pension funds isn't clear enough and he wants it "in black and white" that it will be a constitutional offence for the government to interfere with the retirement industry.

"It would be a very, very significant step to ease people's concern," he said.

Voters' fears that Humala might nationalize the pensions industry probably contributed to the narrowing of his lead in polls before the June 5 runoff against, former interior minister Fernando Rospigliosi said April 29.

Peru's stocks, bonds and currency surged today after a poll showed Humala and Congresswoman Keiko Fujimori running neck and neck.

Humala had 39 percent support and Fujimori had 38 percent in the poll by Lima-based Ipsos Apoyo, which was commissioned by Morgan Stanley. The nationwide poll from April 23-30 had a margin of error of 2.2 percentage points. A poll by Ipsos Apoyo taken April 16-21 gave Humala a six-point lead over Fujimori.

Bond Sale Shelved
Humala's surge into first place in Peru's presidential race triggered the biggest slump in stocks since October 2008 last month and pushed yields on the government's sol-denominated bonds to a two-year high, on concern he will increase state control over the economy and jeopardize $50 billion of foreign investment that the government expects to fuel growth in the next three years.

The government has shelved plans to sell as much as $1.2 billion of bonds in the local or international market after the surge in yields, said Benavides. The outcome of the vote will determine how soon the government can return to the debt market, he said.

Benavides, who became finance minister in September, said that he doesn't want Peruvian pension funds to be subject to government tampering like those in other countries in the region.

Regional Precedent
Argentina in 2001 confiscated about $3.2 billion of pension savings before the country stopped servicing its debt. In 2008, President Cristina Fernandez de Kirchner nationalized the retirement system to compensate for falling tax revenue.

Last year, Bolivian President Evo Morales, a Chavez ally, seized control of his country's private pension funds as part of a campaign to increase state control of the economy.

Peru's four private pension funds have more than doubled their assets since 2005 on rising revenue from contributions and profits, according to the country's pension regulator. The funds have about 4.7 million members, up from 3.7 million five years ago.

The fund managers are concerned that the introduction of a state pension based on obligatory contributions, proposed by Humala, might mean the demise of the private pension system.

Forcing workers to pay into a state pension scheme reduces the incentive to pay into a private plan, said Alejandro Perez- Reyes, chief investment officer at Prima AFP, the biggest of the four funds.

"It's difficult to see how the two could co-exist," Perez-Reyes told reporters in Lima today.

Investment Delays
Benavides said that jitters regarding a possible Humala presidency are leading companies to delay investment, which will hinder economic growth, said Benavides.

Peru has posted average annual growth of 7.2 percent since 2006, the fastest in Latin America. Booming consumer demand coupled with private investment in mines, power plants and infrastructure fueled an 8.8 percent expansion last year.

Gross domestic product will rise by a less-than-expected 6.5 percent this year, though will still be the fastest in the region, he said. The ministry previously saw 2011 growth at 7 percent. The fall in private investment will be the equivalent of 4 percent of GDP, he said.

Next year's growth will depend who wins the election, Benavides said.

"Consumer demand continues strong, but obviously if there's less investment, less employment generated, that will eventually hit consumer demand," the minister said.

Benavides was a senior advisor to Illinois-based CF Industries, the world's second largest producer of nitrogen fertilizer, when he was invited by President Alan Garcia to become his fourth finance minister.

He previously headed Banco Internacional del Peru, the nation's fourth-largest bank, from 1994 to 2007, and served in the government of President Fernando Belaunde in the early 1980.

Benavides said he expects Congress to pass the pensions law before the current session ends July 28.

A congressional committee unanimously approved last week the government's proposal to increase the limit on pension funds' overseas investments to 50 percent from 30 percent.

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To contact the editor responsible for this story: Joshua Goodman at