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UNCLAS SECTION 01 OF 03 BUENOS AIRES 001458 
 
SENSITIVE 
SIPDIS 
 
Treasury for Luyen Tran, Gary Sampliner 
 
Ref: BUENOS AIRES 1442 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PREL PGOV AR
SUBJECT: U.S. Company MetLife Discusses Options in the Face of 
Argentina's Plan to Nationalize Private Pension Funds 
 
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Summary 
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¶1. (SBU) Met Life, the only U.S.-operated private pension fund 
operating in Argentina, does not see any way to block the Argentine 
government's plan to nationalize all private pension assets 
(reftels).  The only possible obstacles are major social unrest or 
Congressional rejection of the GoA's proposed law. MetLife 
executives do not expect either scenario to occur.  They say they 
have yet to speak to GoA officials since the October 21 
announcement, so are still uncertain about the details of the 
initiative.  While they welcome USG efforts to urge the GoA to 
reconsider the action on the basis that it will undermine already 
illiquid local capital markets and the broader economy, they ask 
that the U.S. hold off raising Met-specific concerns until they have 
better information.  MetLife execs assert that both the private 
pension funds and contributors will consider lawsuits to challenge 
the constitutionality of the law, once Congress passes it.  However, 
they consider it too early to consider whether the GoA's action can 
be considered an expropriation and eligible for ICSID arbitration 
under the BIT.  MetLife's preference is to get reasonable 
compensation from the GoA and exit the sector.  End Summary. 
 
--------------------------------------------- 
Background on MetLife operations in Argentina 
--------------------------------------------- 
 
¶2. (SBU) EconOff met October 22 with Metropolitan Life Insurance 
Company (MetLife) executives Oscar Schmidt, Senior VP and Latin 
America Region Head, and Luis Lategana, Argentina and Uruguay 
Country Manager, to get their views on the GoA's October 21 
announcement to nationalize all private pension funds (AFJPs) 
operating in Argentina (see reftels for background on the 
announcement).  MetLife is the only U.S.-majority-owned AFJP in 
Argentina, although New York Life Insurance Company owns a stake in 
the AFJP "Maxima," majority owned and managed by HSBC.  (Comment: 
Schmidt requested that USG officials highlight in any conversations 
with GoA officials that both Met and New York Life have interests in 
Argentina, to avoid giving the impression that just Met is 
complaining to the USG.) 
 
¶3. (U) MetLife is among the top three largest AFJPs.  As of April 
2008, MetLife ranked third out of Argentina's eleven AFJPs in terms 
of the number of contributors, with roughly 600,000 individuals (or 
15% of the system).  Met ranks second in terms of inflows received 
(approximately $50 million/month - or 17% of total inflows to the 
private funds in April) and third in terms of total assets ($113 
million or almost 17% of the total assets in the system as of 
February 2008).  It ranks second in terms of net worth ($83 million 
- 17% of the system's net worth).  (MetLife is also the 14th largest 
insurance company operating in Argentina, as of December 2007.) 
 
--------------------------------------------- -- 
Too Late to Stop It, but Still Time to Amend It 
--------------------------------------------- - 
 
¶4. (SBU) Schmidt speculated that it is too late for the GoA to pull 
this initiative back, and offered only two scenarios that can 
possibly halt or change its course: a significant social outcry 
and/or major opposition in Congress.  He does not expect either, but 
comments that after the difficulties the GoA had with Congress and 
the Argentine public during the agricultural crisis, anything is 
possible. 
 
¶5. (SBU) Schmidt pointed out that the public largely distrusts the 
private pension system, which he called poorly conceived and 
expensive (in terms of administrative fees assessed compared to 
other privatized systems in Chile), and which does not address 
systemic pension problems.  (Comment: this opinion is widely held in 
Argentina, even among the most strident opponents of the GoA's 
nationalization plan.)  As for social outcry, there are reports of 
efforts to organize popular protests (including the emblematic 
Argentine "cacerolazo" or pot-banging protest, scheduled for Friday 
evening, October 24).  However, Schmidt felt that many contributors 
are resigned to losing the money.  (Comment: a common response from 
AFJP participants is that they always saw their contributions as a 
tax, and never trusted that they would get the money back.) 
 
¶6. (SBU) Given public attitudes and the GoA's majority in Congress, 
 
BUENOS AIR 00001458  002 OF 003 
 
 
Schmidt expects Congress to pass the GoA's proposed law easily. 
However, he did hold out some hope that the opposition may insist on 
modifications of the draft law, including better control of funds 
and limits on lending to GoA by the Social Security Agency (ANSES). 
 
¶7. (SBU) Schmidt argued that it is not a coincidence that the GoA 
has presented this idea while Cabinet Chief Sergio Massa and ANSES 
head Amado Boudou are in key positions and close to the President, 
as they are two of the most knowledgeable people in the country 
about the various Argentine pension systems.  Therefore, Schmidt 
emphasizes that this is not an issue of lack of understanding of the 
system on the part of the GoA, as has been the case with previous, 
poorly thought out GoA proposals this year (e.g., increasing export 
taxes in March and announcing Paris Club payment in September.)  On 
the contrary, he asserted that Massa and Boudou know exactly what 
they are doing, and have pursued a brilliant communications 
strategy, using as justification for their move the opposition's 
harsh criticism in the past of the private pension system.  The way 
they have sold it, Schmidt argues, will make it difficult for the 
opposition to oppose the draft law during upcoming Congressional 
debates. 
 
---------------------------------- 
Met asks USG to limit intervention 
---------------------------------- 
 
¶8. (SBU) Schmidt asked that the USG not advocate directly on 
MetLife's behalf at this time, but acknowledged that Met's 
government relations office had passed broad talking points to the 
Treasury Department, to be used with Argentina's Ambassador to the 
U.S. Hector Timmerman or other GoA officials.  The gist of these 
points is to highlight to the GoA that this initiative is 
potentially devastating for the country's economy.  They warn that 
AFJPs are the main source of investment for Argentine equities, 
corporate debt, and government bonds, so removing them will have 
seriously adverse consequences on domestic capital markets.  They 
also warn that the GoA will further lose credibility with 
international capital markets and foreign investors, and that the 
GoA should expect litigation, since this action may be seen as an 
expropriation of private assets. 
 
¶9. (SBU) Schmidt acknowledged that the points may not have much 
impact with the USG's first-tier interlocutors: Ambassador Timerman, 
since he is likely a strong supporter of the initiative, or Cabinet 
Chief Sergio Massa, since he was one of its main authors.  He said 
that the AFJPs have had an open and fluid relationship with Sergio 
Massa until recently, but no senior GoA officials have been in 
contact with any of the AFJPs since last weekend.  They hope for a 
meeting soon with the GoA to discuss details of the GoA initiative 
and possible options for compensation. 
 
------------------------------------------ 
AFJPs divided on how/whether to fight back 
------------------------------------------ 
 
¶10. (SBU) The AFJPs have been holding constant meetings since the 
day of the announcement, but there is much uncertainty and they have 
not reached an industry-wide agreement on how or if to fight back. 
Post understands from other contacts in the sector that there is a 
divisive debate among high-ranking AFJP executives, with some 
arguing for a confrontational approach: to "expose GoA lies," 
explain the benefits of the private system, highlight the major 
weaknesses of the public "pay-as-you-go" system, and also forcefully 
argue that the GoA action is tantamount to expropriation.  However, 
the majority of AFJP executives are apparently resigned to the end 
of the "AFJP era," are tired of constant GoA interference in the 
sector and pressure to buy GoA debt instruments, and believe they 
would never see the other end of a court case.  These executives are 
reportedly interested in completing the nationalization quickly and 
keeping a low profile to avoid GoA retaliation. 
 
¶11. (SBU) Schmidt noted an additional aspect that many in the sector 
are considering.  They are facing a Catch 22: if Congress approves 
the nationalization law, the AFJPs' value goes to zero.  However, if 
Congress rejects the nationalization law, many in the industry 
believe the possible consequences are higher risk of default in 
2009, a sharp devaluation, and higher chances that the GoA loses the 
2009 elections, and, weakened, is unable to govern the country 
during a time of difficult global economic dynamics.  Schmidt 
commented that the second scenario is equally bad for AFJPs, so sees 
 
BUENOS AIR 00001458  003 OF 003 
 
 
this as a no-win situation for Met and the other AFJPs. 
 
¶12. (SBU) For now, Met's Schmidt sees two fronts of action.  First, 
after Congress approves the law, many contributors will sue the GoA, 
challenging the constitutionality of the nationalization, and likely 
all AFJPs will also begin lawsuits as part of their fiduciary 
responsibility (and to avoid being the target of lawsuits from their 
own contributors).  Second, the four foreign-owned AFJPs (Spanish 
BBVA/Banco Frances's "Consolidar," British HSBC's "Maxima," Dutch 
ING's "Origenes," and Met -- all four countries have active BITs) 
may have to consider whether the GoA's action qualifies as an 
expropriation, and eligible for arbitration under their home 
countries' Bilateral Investment Treaties. 
 
¶13. (SBU) Schmidt personally considers this an expropriation of 
Met's business in Argentina.  However, he has not yet discussed with 
MetLife's lawyers opportunities for pursuing ICSID arbitration under 
the BIT, and speculated that they are months away from the point of 
having to consider either lawsuits or ICSID cases.  He stated 
frankly that Met would much prefer to reach a deal with the GoA for 
reasonable compensation, so that Met can pay severances and close 
the office.  (The draft bill, which is only a few pages long, 
includes a vague reference to compensation.) 
 
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Comment 
------- 
 
¶14. (SBU) While MetLife representatives have asked the USG to stand 
down as far as raising Met-specific concerns with GoA interlocutors, 
they are not averse to Embassy or Washington agencies highlighting 
to key GoA officials that there are U.S. company interests at play, 
and reminding them of U.S.-Argentine BIT protections.  At this time, 
and until Met and or New York Life get a better handle on how the 
nationalization plays out, Post does not plan to seek out GoA 
officials to raise our concerns.  However, we will take advantage of 
normal contacts with the GoA to inquire about the details of this 
proposal and highlight the U.S. interests involved. 
 
WAYNE