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Argentine government struggling to stay on its feet, says The Economist

Monday, January 13th 2014 - 06:04 UTC
Full article 87 comments
The Lady is in deep trouble with several simultaneous fronts The Lady is in deep trouble with several simultaneous fronts

The English business and finance weekly The Economist is no fan of Argentina's Cristina Fernandez but its articles have an expansive repercussion, and even when it does not add much to the current situation of Argentina, it does undoubtedly have a reference influence.

 It has been a summer of discontent in Argentina. In December police forces in 20 of the country’s 24 districts went on strike in protest at low salaries, sparking the worst bout of looting since the crisis of 2001. A heat-wave then knocked out the power in Buenos Aires during the holiday season, leaving tens of thousands without electricity for more than a fortnight. A combination of political torpor and economic fragility has once again raised questions about the precariousness of the country’s position.

A few months ago things looked rosier. After brain surgery had forced her to rest for six weeks, President Cristina Fernández returned to work in November with aplomb. First she purged her cabinet of some of its more ineffectual ministers. Next she nodded through a 5 billion dollar offer to compensate Spain’s Repsol for the nationalization of YPF, an oil firm, in 2012. Ms Fernández even abandoned the widow’s weeds she had worn since her husband Nestor’s death in 2010.

But clothes are easier to shed than Argentina’s grievances, exemplified by striking police. Although police salaries are not meager, they are devoured by inflation, which private economists estimate to be 25% and rising. Having seen the police win pay rises by downing batons, other public-sector employees may do the same. Railway workers and teachers’ unions are demanding wage rises of around 30% in 2014.

As for the blackouts, the unusually warm weather was not the only factor. Electricity and gas tariffs have been artificially depressed since 2002, when Eduardo Duhalde, then president, forbade the country’s private energy providers from charging more. Improvements to Argentina’s decaying electricity grid have been put off. Energy firms rely on government subsidies, estimated at around 11 billion dollars in 2013, to cover their costs.

Ms Fernández is therefore in a quandary. Holding wage rises below inflation and quietly cutting subsidies is politically untenable. But continuing to spend will add to Argentina’s monetary and fiscal pressures. Dante Sica of Abeceb.com, an economic consultancy, estimates that large pay rises for provincial public-sector employees could double the provinces’ fiscal deficits. On January 3rd the federal government, which is itself in the red, agreed to roll over the debt of 18 provinces to help ease their financial strains.

The government is resorting to familiar tactics to square the circle. It has negotiated an accord with supermarkets to freeze the prices of 193 common goods such as milk, sunflower oil and beef. It is blaming the electricity firms for the blackouts: on January 7th the planning ministry seized the providers’ meager grid-improvement fund. To stop the draining of foreign-exchange reserves, it has raised taxes on credit-card purchases made abroad, from 20% to 35%. Such controls are not new: the government has in effect banned the sale of foreign currency at the official exchange rate since 2011. But they fuel frustration.

Argentina’s political classes already have their eyes on presidential elections in 2015. Ms Fernández was conspicuously absent during the period of the blackouts, on holiday in Patagonia. Her own ambitions may now extend only to handing the country’s problems over to a successor. That will depend on how well Argentina marshals its international reserves. By the end of 2013 those reserves had fallen to 30 billion dollars; Argentina’s energy deficit will reach 9 billion this year, says Daniel Montamat, an energy consultant.

To ensure that reserves do not dry up entirely, the government needs a good 2014 harvest and quiescent farmers. Agriculture is a crucial source of dollars, accounting for most of the country’s 10 billion export-tax take in 2013. But taxes are a sore point for farmers struggling with rising costs and an overvalued peso. Farming groups almost brought Ms Fernández down in 2008 by withholding sales. A repeat of this tactic in 2013 fizzled because many small producers could not afford to forgo earnings. Argentina may not be in outright crisis, but it is very far from being stable.

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  • Troy Tempest

    “ ...exemplified by striking police. Although police salaries are not meager, they are devoured by inflation, which private economists estimate to be 25% and rising. Having seen the police win pay rises by downing batons, other public-sector employees may do the same. Railway workers and teachers’ unions are demanding wage rises of around 30% in 2014.

    As for the blackouts, the unusually warm weather was not the only factor. Electricity and gas tariffs have been artificially depressed since 2002, when Eduardo Duhalde, then president, forbade the country’s private energy providers from charging more. Improvements to Argentina’s decaying electricity grid have been put off. Energy firms rely on government subsidies, estimated at around 11 billion dollars in 2013, to cover their costs.'

    That about says it - will even the loyal ”Axel Arg” demand a teacher's raise??
    Energy costs up
    Wages up
    Infrastructure repair costs up
    Government stability down

    Oh, dear

    Warm up the jet... !

    Jan 13th, 2014 - 08:04 am 0
  • Monkeymagic

    @1

    Axel arg won't demand a teachers raise. He will do some “research” and then “lecture” it's dumbass and completely wrong findings.

    Hehehehehe

    Jan 13th, 2014 - 08:17 am 0
  • Britworker

    Here's hoping for a terrible harvest.

    Jan 13th, 2014 - 09:58 am 0
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