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Derivatives Losses in Ibero-America's Private Pension Funds Just the Tip of the Iceberg

Oct. 27, 2008 (EIRNS)—Private pension funds in at least three Ibero-American nations—Chile, Argentina and Mexico—have suffered huge losses due to investments in speculative derivatives instruments.

Chile's $110 billion pension fund has lost 15% of its value, while Argentina's partially privatized system lost a whopping 45%. This is one of the reasons why Argentine President Cristina Fernandez acted last week to renationalize the private funds. And today, experts from the Economic Research Institute at Mexico's National Autonomous University (UNAM) warned that losses in that country's private pension funds, known as Afores, could be even greater than either Argentina or Chile! They could be "pulverized," one source warned.

Pension fund losses are just the tip of the iceberg, however. Financial explosions across the region are imminent. Look at Mexico and Brazil, Ibero-America's two largest economies. There, prominent private sector firms with exposure to a range of speculative instruments (i.e., exchange rate, currency and interest-rate derivatives), must soon release details on the magnitude of their third-quarter losses, which range in the tens of billions of dollars. Forty Mexican companies have until tomorrow—Oct. 28—to present their reports, while Brazilian companies have until Nov. 15.

It has been estimated that corporate derivative losses could go as high as $28 billion in Brazil, but today, Finance Minister Guido Mantega said "I don't know the amount. The losses could be $10 billion, $15 billion, or $20 billion."

Add to this the fact that hedge funds are frantically pulling money out of emerging markets like Brazil and Mexico, and that both these governments have been forced to inject billions into their local exchange markets to defend their rapidly depreciating currencies. Brazil has spent $23 billion over the past month for the purpose, while Mexico has spent $12 billion.