Anses will lose more than half of the funds allocated to PROCREAR

Lack of housing is a severe problem that impairs many household’s quality of life. This explains the high expectations generated by the PROCREAR plan which provides subsidized loans financed directly with pension funds to some families chosen by a lottery. Besides being partial and inequitable, the plan accelerates the onset of an upcoming pension crisis like the ones that have happened thanks to similar initiatives in the past. A genuine solution to the housing problem requires eliminating inflation to regenerate a private market for long-term mortgage.

The PROCREAR program is a government initiative that offers subsidized loans for construction, purchase or renovation of houses. ANSES pension funds are used to finance this program. Those interested in the subsidized loans have to register in ANSES to access a gambling administered by the National Lottery. The winners become eligible for an appointment at the Banco Hipotecario to apply for the subsidized loan. This bank makes the final decision based on income records and family background. In the last lottery 158 thousand out of 365 thousand families were selected.

According to the 2010 Census, in Argentina there are 12 million households of which 3.4 million (28%) has no homeownership. 16% (2 million families) are tenants, 12% (1.4 million families) are occupants through different modalities (borrowing, work, illegality, etc). In a context were 1 every 4 families don’t own a house, loan applications are much higher than the quotas established by the plan, therefore a lottery is carried out to randomly select potential beneficiaries.  

According to ANSES, the average loan so far is of AR$266 hundred, the average monthly payment of AR$2,524 and the average period is 22 years. This means that:

· If the inflation rate is 15% annually in average, the families would only be returning 77% of actual value of the loan.

· With a 25% annual average inflation rate, the value of the loan will be reduce to 50%.

· With a 35% annual average inflation rate, families will end up returning only 37% of the actual value of the loan.

This simulation, although approximately, illustrates how inflation acts deterring the recovering of the loans granted by PROCREAR. If inflation remains at the current level, for every AR$2 that ANSES destines to PROCREAR, the pension system will recover only AR$1. In other words, to achieve a mortgage loan that is accessible, ANSES is venturing on a very ruinous financial transaction. Proof of this is that, even under a scenario of reduced inflation, the loan will lose real value eroding the sustainability of the pension system.

The benefit enjoyed by the families chosen by the lottery is equivalent to the damage suffered by current and future retirees due to the loss of pension savings. This type of loans financed with pension funds has been experienced in the past with very negative consequences. The Argentinean pension system originated in the beginning of the last century under the logic of collective capitalization, i.e. the contributions made by members were accumulated to allow future funding of their retirements. In this scheme using pension savings to give mortgage loans is a good option as long as it ensures investment protection and a reasonable profit. But because this was not guaranteed, inflation eroded the savings. The pension system went bankrupt, leading to the terminal crisis that justified the creation of the individual capitalization accounts in the early '90s.

It is curious that after nationalizing the pension funds in 2008, the government is quickly re-implementing the same practices that led to the bankruptcy of the pension system. The main difference nowadays is that the system’s current financial basis is much weaker after having given away over 2.6 million non-contributory pensions putting the social security crisis quite much closer.

PROCREAR will not solve the housing problem and will likely accelerate the pension crisis. Appropriate public policy for housing would demand creating the economic stability needed for a long term private mortgage market to operate.  Thus most people will be able to repay their mortgage with their own effort, and lower income families could be assisted by the government but through taxes not pension savings.  This would eliminate the need to appeal to the lottery which in practice implies raffling the future of the retirees.