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October 24, 2014
Saturday, March 29, 2014

Subsiding subsidies

The government’s decision to cut state subsidies for gas and water bills while hiking utility rates is perhaps best described as the right move at the wrong time. Even if these subsidies were vital during the economic crisis at the start of the century, as President Cristina Fernández de Kirchner pointed out, the best time for the cutbacks was not now but several years ago at minimal sacrifice in boom times (say 2005-7) with full employment and real wage gains, instead of some 400 billion pesos of subsidies later (a sum sufficient to construct well over a million housing units, among other useful insfrastructual investments). But this year wages already falling behind inflation amid economic slowdown have to take another hit, thus further complicating an already tricky collective bargaining process.

Whether or not the subsidy cuts are a “massive utility rate hike” or the official euphemism of a “reallocation of funds” is merely a question of semantics. In denying the former description, CFK was both talking nonsense and telling the truth — denying a substantial hike is absurd when the percentage of increase tops 400 at times but given that the ludicrously subsidized utility bills can be as low as single digits, even quadrupling or quintupling them would not add up to much. Yesterday’s newspapers were full of prospective percentages for the future gas and water increases for the various types of household but perhaps it would be better to await the bills themselves — Economy Minister Axel Kicillof’s estimate of the savings for the state as between five and 13 billion pesos fully reflects the possible range. While several million people are affected, at least three categories will continue to be subsidized — manufacturing industry (provided it holds its prices down), the socially vulnerable (the elderly in homes and on minimum pensions, chronic invalids, the handicapped, public housing residents, universal child benefit recipients, the jobless or those earning under 5,200 pesos) and those reducing gas consumption by 20 percent (hence the range in Kicillof’s savings estimates).

CFK was being sincere when she said she would rather “save one percent than collect one percent more” because the saving on fuel imports would be in dollars while the billing is in pesos — this perhaps gives the game away as to where the savings will go because, as Kicillof explained, what is left over from energy distribution and transportation (its costs increased by devaluation) will go on universal child benefits, an indication of priorities. These cuts barely scratch the surface of the fiscal deficit but (with electricity still to come), they are only just beginning.

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