BUENOS AIRES, Argentina -- Argentina's Merval stock market index dropped Tuesday after the government announced new economic controls, including a mandate that insurance companies sharply increase their investing inside Argentina.
President Cristina Fernandez is proposing that Congress put her government in charge of the currently self-regulated stock and commodities markets, and she decreed that insurance companies must invest up to 30 percent of their holdings in "productive activities" to improve Argentina's infrastructure.
"This decree links the insurance industry with the development of the actual economy," said the decree published Tuesday.
With her government redirecting resources toward "projects that have a clear productive and social purpose," insurers will "encounter new possibilities of investment that that will feed a virtuous cycle of development with social inclusion," it said. The decree, effective Wednesday, puts Deputy Economy Minister Axel Kiciloff and Commerce Secretary Guillermo Moreno in charge of a committee that will decide where the insurers can invest their holdings.
The list begins with projects already sponsored by the nationalized pension system and other government-run funds, but also can include whatever the committee decides is "productive, according to the objectives of the political economy."
Economy Minister Hernan Lorenzino said Argentina's insurers are sitting on $13 billion but put only $18.5 million in what the government considers productive projects. The government hopes to raise that to $1.5 billion by mid-2013.
This "will be good for the national economy and for the insurance sector as well, since these investments have proven to be the best in terms of profits and security in recent years," Lorenzino said in a radio interview.
Argentina's Merval stock market index dropped more than 3.5 percent Tuesday after Fernandez made the surprise announcements Monday night.
More bad economic news in Europe was partly to blame, said economist Milagros Gismondi of the Orlando J. Ferreres y Asociados consultancy in Buenos Aires. But she told The Associated Press that markets also were slumping due to continued uncertainty about the future of Argentina's economy.