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Economics

Post-election Argentina tightens its belt— London

Preface

With the jacarandas blossoming, barbecue smoke wafting from patios and temperatures rocketing, spring in Buenos Aires is in full swing.


Buenos Aires, Austerity

28 November 2011

With the jacarandas blossoming, barbecue smoke wafting from patios and temperatures rocketing, spring in Buenos Aires is in full swing.
 But residents in Argentina’s capital seem to be wandering around with the thunderous look of a child whose sweets have been stolen. And the reason for their disquiet is down to one issue: state subsidies.


In truth, Argentina’s free-flowing cash fiesta has probably gone on for too long. For years the government has pumped funds into making sure utility bills and public transport costs have remained ridiculously low. But that all looks set to change.


While food prices have shot up as the result of high inflation, the capital’s metro system has, for as long as most people remember, frozen its ticket price at AR$1.10 (around €0.20) thanks to state support.


Bill payers, too, have ridden their luck, often receiving miniscule monthly charges, or being able to live free altogether if able to consume less than the generous financial assistance offered by the state.


But no sooner had Cristina Fernández de Kirchner secured her landslide re-election in October than the government was announcing its plans to pull out of propping up the Buenos Aires metro.


Next on the subsidies hit list were light, water and gas, targeted earlier this month. The first to feel the sting of increased bills will be the industrial and commercial sectors, as well as residents from the most exclusive neighbourhoods.


Fernández has played her populist cards to perfection: leaving talk of change out of her re-election campaign and buttering up the populace with cheap prices. Then in the tradition of the greatest Latin American leaders, she waits about 10 days after her victory to announce massive structural changes.

In fairness to the Argentinean President, the move is something that badly needed to happen; the government has been spending money like it’s been going out of fashion and it’s thought initial cuts will save around €800m.


It’s also calmed a few overseas nerves, fearful that Argentina would plough on with spending despite slowing growth and hit the self-destruct button in spectacular style, à la 2001. Indeed, for all Fernández’s bold talk, the move shows the sort of European-style austerity that she normally so vehemently criticises. 


Fernández needs to be careful she doesn’t alienate her powerbase. If she does, Buenos Aires – a city that seems to be brought to a chaotic standstill almost daily by one social grievance or the other – is unlikely to go down without a good, old-fashioned scrap.

Monocle 24

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