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2012 fiscal austerity in Argentina

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Title: 2012 fiscal austerity in Argentina  
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2012 fiscal austerity in Argentina

Argentina began a period of fiscal austerity in 2012, dubbed "Sintonía fina" (Spanish: Fine tuning) by the government.[1][2] It included increases in several utility and public service rates, limits on wage raises, limits on imports, and a reorganization of state enterprises.

Rates and fares

The administration of Néstor Kirchner and of his wife and successor, Cristina Fernández de Kirchner, had regulated utility and public service rates at levels cheaper than needed by service providers since 2003. The state maintained this policy by providing subsidies to the service providers, compensating their losses. Fiscal austerity policies enacted early in 2012 removed many of these subsidies, however, leading to huge rate and fare increases. The removal of subsidies in the case of utility rates was done initially on a case-by-case basis, and by inviting people to voluntarily forfeit the subsidies by filling out a form; several politicians and other famous people did so.[3] They were then removed for wealthy neighborhoods, and while rates were maintained in lower income districts, the increases were eventually extended to most people. Several unions requested wage raises in accordance to these increases and to high inflation generally; the rate and fare increases would cost up to 80% of the amount of the wage raises, however.[4]

The increase in rates - up to 300% - has no similar precedent in recent Argentine history, save for those enacted by Economy Minister Domingo Cavallo more than a decade before.[5]

Wages

Inflation rates published by INDEC (nearly 10%) have typically been less than half of those estimated by private consultants and opposition members of Congress since the statistical agency came under presidential intervention in 2007. High inflation, in turn, has prompted trade unions in Argentina to request frequent wage increases. The National Government endorsed collective bargaining wage raise guidelines of 24% in 2010 and 25% in 2011.[6] The average wage hike obtained by unions was 5% higher than these figures, however,[6] and the administration's austerity guideline for 18% raises in 2012 was similarly flouted by subsequent collective bargaining agreements, which averaged nearly 25%.[7] Hugo Moyano, head of the General Confederation of Labor (CGT), opposed the new, more moderate guidelines, and joined forces with a longtime rival, Restaurant Workers Union head Luis Barrionuevo, to pursue requests for higher raises.[8] Antonio Caló of the Steel and Metalworkers Union (UOM) and Sergio Palazzo of the Bank Employees Union did likewise, announcing sectoral strikes in May to seek a 25% increase.[9]

Imports

Seeking to reverse a decline in National Customs, to personally oversee the requests for imports; more than half of import requests filed under the new system were denied.[12] This action generated diplomatic tension and commercial disputes with Brazil, Chile, Colombia, Mexico, and Peru.[13]

State enterprises

The Buenos Aires Metro had been subsidized as well; instead of removing these subsidies directly as was done with other services, however, the National Government proposed the subways' transfer to the City of Buenos Aires. Mayor Mauricio Macri initially accepted, but further differences arose. The National Government intended to transfer the subways without the subsidized budget needed to operate them, and the city had already passed a municipal budget for 2012 which did not consider these added costs. The 2012 Buenos Aires rail disaster generated concern about the conditions of railways and subways, moreover. The city administration considered that without the transfer of subsidies the city's economy would be harmed, and that the administration's conditions regarding these were an imposition.[14] The National Government sent a bill to Congress to approve the transfer, and Macri did similarly with the City Legislature; both must approve the transfer to confirm it.[15]

Currency Exchange Rate

Changes related to the 2012 fiscal austerity measures, as well as the government's April 2012 move to nationalize the country's largest oil-and-gas corporation, YPF, also had a pronounced effect on currency trading for both institutions as well as individuals wanting to buy or sell pesos. Following the tightening of foreign export controls and import restrictions, in early 2012 a widening gulf emerged between the official peso-dollar exchange rate and the blue-chip swap rate, indicating a much weaker sentiment on the value of the peso relative to the U.S. dollar than the official exchange rate suggested. For tourists and local residents wanting to swap dollars for pesos (or vice versa), it meant an active "Blue Market," centered around Florida Street, where the peso could be traded for a lower value than the official exchange rate, which sees almost daily intervention from Argentina's central bank designed to slow its perceived weakening relative to the dollar. [16] 2012's reforms, instead of having the intended effect of holding down interest rates and spurring economic recovery, ended up causing an immediate and sustained flight of capital from the traditional banking system into a robust underground economy.[17]

References

  1. ^ Cristina apela a la sintonía fina para disimular el ajuste (Spanish)
  2. ^ De la sintonía fina al ajuste desordenado (Spanish)
  3. ^ Cristina, el gabinete y algunos famosos ya renunciaron a los subsidios (Spanish)
  4. ^ La quita de subsidios licuará hasta el 80% del alza salarial a la clase media (Spanish)
  5. ^ El tarifazo más lindo del mundo, obra maestra del relato kirchnerista (Spanish)
  6. ^ a b "La Presidenta anunció un aumento de 17,62% para los jubilados a partir de marzo". Presidencia de la Nación. 
  7. ^ "Desde la UIA anticipan que los aumentos de salarios rondarán el 25%". iProfesional. 
  8. ^ Moyano y Barrionuevo aceitan pacto para elevar paritarias (Spanish)
  9. ^ "UOM y Bancarios paran y se movilizan contra 22%". Ámbito Financiero. 
  10. ^ Importaciones con trabas y sustitución (Spanish)
  11. ^ Moreno exigió a las empresas que compensen importaciones (Spanish)
  12. ^ Moreno ahora aprueba sólo la mitad de los permisos para importar (Spanish)
  13. ^ Por las trabas, Perú, Chile, Colombia y México demandarían a la Argentina (Spanish)
  14. ^ El Subte que hace ruido (Spanish)
  15. ^ Vidal insiste en que el traspaso del subte debe estar ratificado por la Legislatura (Spanish)
  16. ^ Argentina's Peso Problem
  17. ^ Pesos Go Underground as Dollar Ban Backfires
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