Argentina mulls benefits cut for dollar buyers

Fernandez calls public services subsidies for those who can save in dollars amid peso's devaluation “unfair”.

Argentina mulls benefits cut for dollar buyers

World Bulletin / News Desk

Argentina’s government is studying the possibility of removing public service subsidies from residents who buy dollars as part of the latest effort to protect the peso after a sharp devaluation last month.

“It is an issue that we are still considering,” Presidential Chief of Staff Jorge Capitanich said at a televised press conference Wednesday. “We have not made a decision on this issue...when it is made it will be announced.”

The idea is to strip subsidies that keep the costs of electricity, gas, water and other public services down for those who buy dollars for savings.

Capitanich raised the issue last Sunday in an interview on public television. President Cristina Fernandez de Kirchner also mentioned the issue in a televised address Tuesday.

Certain sectors of the economy no longer need subsidies thanks to the robust recovery from the 2001-02 crisis that enabled people to find work, buy a car, a house and go on vacation, she said.

“It is a problem of equity,” she said, expressing her belief that subsidies should be given to those who need them most and not those with enough disposable income to purchase dollars for savings.

“It is not fair that we subsidize electricity and gas for those that can save 20 percent of their salaries to buy dollars,” Fernandez said.

Argentines have been buying dollars to protect their savings against rising inflation and currency depreciation.

The annual Inflation is expected to amount to 30 percent this year after running between 20 percent and 25 percent since 2010, according to private estimates compiled by opposition lawmakers.

Furthermore, the peso dropped 23 percent to 8 per dollar in January and trading on futures markets suggest it could sink to 8.78 per dollar in June.

Some economists say it could reach 10 per dollar this year.

Argentines are opting buying dollars, with interest rates running at less than the inflation and currency depreciation.

The government banned the purchase of dollars for savings in 2011, leading to a rise in black market currency exchanges.

The peso dropped to 13.10 per dollar last month - a gap of 70 percent with the official exchange rate. Authorities lifted the ban on January 24 to try to reduce black market trading and capped purchases at US$2,000 per month, depending on a buyer’s salary.

The move was designed to stem capital flight and halt the three-year decline in foreign reserves, which the government wants to protect to pay the national debt and cover imports, including that of much-needed energy supplies.

The reserves dropped 47 percent to a seven-year low of $27.9 billion from a peak of nearly $53 billion in 2011. It will be harder for the central bank to sustain the 8 per dollar exchange rate if the drops continue.

The government has authorized the purchase of $223 million since lifting the ban, of which $140 million has been purchased, according to the Federal Tax Agency.

Fernandez said wealthier residents are buying the fewest dollars for savings since it is "more profitable” to invest in other assets, including properties and businesses.

Ignacio Olivera Doll, a columnist for Buenos Aires' financial newspaper El Cronista Comercial, wrote in a recent column that most people that buy dollars “are frightened depositors” who want “to avoid getting dragged down by another change in the currency that could put their savings at risk.”

Argentina unions blast president on inflation rise

Argentine union leaders slammed President Cristina Fernandez de Kirchner on Wednesday after she downplayed concerns that the country`s inflation is worsening in the wake of the peso's 23 percent devaluation in January.

Argentine Workers’ Center General Secretary Hugo Yasky came out in support of Antonio Calo, who also runs a different trade union, after the president blasted Calo for saying inflation was a rising concern.

“People are struggling to make ends meet so that they can eat,” Calo said January 30.

The comment apparently angered the president, who scolded Calo - one of her long-time supporters - in a televised speech late Tuesday.

“I heard your phrase Antonio, when you said that salaries are not enough to eat,” Fernandez said. “I don’t think any Argentines are dying of hunger,” she added.

Yasky threw his support behind his fellow union boss, saying in a radio, “Calo expressed the situation of the workers.”

The verbal battle is a sign of rising concerns about Argentina's inflation, which the government has failed to contain since it reached double digits in 2007.

Fernandez, who took power in 2007, has used price controls without much success.

The annual inflation hit 20-25 percent in 2010 and is expected to reach 30 percent this year, according to estimates by private economists.

The credibility of the government’s estimate of 10.9 percent is being questioned by the International Monetary Fund.

Worries about consumer prices again hit the headlines after the government devalued the peso 23 percent to 8 per dollar last month. Businesses started raising prices to compensate for the higher costs of dollar-based supplies, including imported equipment and parts.

The government is trying to control the situation by fining some retailers for what it considers to be excessive price hikes and calling in members of various supply sectors for talks on capping prices.

Instead of raising prices, Fernandez said companies should increase investments to create jobs and help bolster consumer spending power.

She said in Tuesday's televised speech that some economists say this model “of economic expansion generates inflation.” She added, “It is as if people who achieve spending power, they invariably wind up in inflation. This is not the theory that we believe, which is of development and the increase in the spending power of salaries.”

Her comments do not appear to be calming nerves, with economists saying the only concrete anti-inflationary measure available is to force the central bank to raise interest rates.

The bank increased the rate it pays on short-term debt to nearly 29 percent Tuesday, from 25 percent a week earlier and 14-15 percent before January 23-24, when the brunt of the peso devaluation occurred.

This aims to encourage people to save in pesos, helping to reduce rampant consumer demand.

Most people have been spending freely in anticipation of a rise in prices and because interest rates have been less than the inflation and currency depreciation.

With public discontent rising, speculation is increasing that the president may not be able to hold onto power until the end of her term on December 10, 2015.

Interior Minister Florencio Randazzo rejected such notions.

“Don’t delude yourselves, we’re not going to go early,” he said on public radio Tuesday. “If there is anything that characterizes Cristina and those of us who accompany her, it is that we are willing to put up a fight.”

Other senior officials and allies made similar comments this week.

This came after Maurice Closs, an ally of the president and governor of the northern Misiones Province, warned Monday that some sectors of the economy are seeking to put pressure on Fernandez to resign.

The comments led union leader Luis Barrionuevo to say on radio Wednesday, “If they are scared to go early, it is because they are going to go early. Otherwise you would not talk about it.”

The unions are preparing to seek salary increases of 25-30 percent this year, in line with inflation. Different factions of the labor movement are holding talks to launch a more cohesive battle.

Fernandez said that instead of pushing for higher salaries union members should help her fight against price hikes.

“When I see my fellow union leaders in the face of these speculative maneuvers (price hikes), they say that the only solution is to increase wages. But I do not think they understand what is going on.”

She went on to invite union workers to police prices at shops.

“I would like to see my fellow union leaders in every supermarket, in every hypermarket, in every pharmacy to help control” the prices of a government program that capped them on 100 staple goods for 2014, she said.

The government wants to limit wage hikes this year to contain inflation, but economists warn that the economy could slow and unemployment rise if the wage increases are low. If the wage hikes are high, inflation could rise faster and push the economy into a recession.

Eduardo van der Kooy, a columnist for opposition newspaper Clarin, summed up the tensions in a column on Wednesday: Argentines “historically” turn to dollars at times of fast currency depreciation and inflation or “whenever they sense that a storm is near.”

Last Mod: 06 Şubat 2014, 13:05
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