Argentina to Require Insurers to Invest to Boost Economy

October 23, 2012

Argentine President Cristina Fernandez said on Monday insurers would have to invest some of their funds in production and infrastructure projects as she seeks to boost sluggish economic growth.

Latin America’s No. 3 economy grew a sizzling 8.9 percent in 2011 but growth has slowed sharply this year due to sluggish global conditions, slackening demand from top trade partner Brazil, and the impact of surging costs at home.

Fernandez, who faces a crucial mid-term election test next year, is embracing increasingly interventionist economic policies as she seeks to sustain economic activity, which analysts say is vulnerable to insufficient credit.

She said the insurance industry overhaul mirrored a similar move announced in July that obliges banks to lend to local businesses at favorable rates.

“This is about turning a new page on what has up until now been the major destination of insurance company funds,” the left-leaning president said in a televised speech, describing the measure as counter-cyclical.

As part of the shake-up, insurance companies will have to lend a portion of their portfolio funds — between 5 percent and 30 percent depending on their liquidity needs — to medium- and long-term production and infrastructure projects. Officials did not immediately provide further details about what types of projects would be included.

Fernandez said that should raise insurers’ investments in that sector of the economy to about 7 billion pesos ($1.5 billion) by May 2013, up from just 88 million pesos today.

Jorme Aimaretti, president of Argentina’s UART insurers’ union, gave the measure a cautious welcome.

“As long as they’re in solvent, reliable (projects) that fit in with the flows that we have to return to our clients to cover claims, we don’t have any objections,” he told Reuters.

A year ago, the government ordered insurance companies with investments totaling $1.6 billion held outside the country to bring the funds back within 50 days.

The president also said she would send a capital market reform bill to Congress to make it easier for ordinary Argentines to invest and give the country’s CNV securities regulator new powers including more control over credit ratings agencies.

“We want to give the capital markets a new (regulatory) framework so they’re more transparent, more accessible and more straight forward,” she said, calling the ratings agencies a “massive international swindle.”

Argentina’s economy minister accused credit ratings agencies last week of releasing “terrorist” reports and acting like “pirates” after Moody’s Investors Service said Chaco province defaulted last week when it paid dollar debts in pesos.

($1 = 4.7425 pesos) (Reporting by Helen Popper, Maximilian Heath and Guido Nejamkis; Editing by Lisa Shumaker)

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