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Argentina cuts gas and water subsidies in latest move to curb soaring deficit

Many consumers in Buenos Aires will see rate hikes of as much as 400 percent

President Cristina Fernández de Kirchner with her economy minister, Axel Kicillof, on Thursday.
President Cristina Fernández de Kirchner with her economy minister, Axel Kicillof, on Thursday.EFE

Struggling to reduce a soaring deficit, the Argentinean government on Thursday said that it was cutting public subsidies by 20 percent for gas and potable water for most consumers in Buenos Aires, who have seen their basic utilities under a price freeze since 2002.

Economists predict that gas prices are expected to rise between 100 and 284 percent, while water rates will also go up between 70 and 400 percent for consumers who are affected by the government’s decision. Prices will differ from neighborhood to neighborhood, with consumers in the capital’s more affluent districts paying more for their services.

“This is not an across-the-board massive rate hike,” President Cristina Fernández de Kirchner said during a nationwide address.

Groups that will continue to benefit from the subsidies include the unemployed, workers who hold informal jobs and have children under the age of 18, and retired persons who collect a minimum pension.

In Buenos Aires, residents paid at the most three times less for gas and water than Argentineans in other provinces

“I feel a little bit like a mother to Argentina, a mother to all Argentineans, and we are all making a really great effort,” the president said, after explaining which groups will be exempt from the subsidy cuts.

The Fernández de Kirchner administration, which considers itself “a populist and nationalist” government, has now embarked on a new path to regain global confidence as it struggles to get the country’s finances in order.

After years of manipulating figures, the government has begun releasing accurate statistics regarding inflation and consumer prices. Other important steps the country has taken this year include devaluation of the peso and hammering out a final agreement with the Spanish petroleum giant Repsol to pay the firm compensation for expropriating 51 percent of its holding in the local affiliate YPF two years ago.

Argentina has also entered negotiations with members of the Paris Club to seek ways to get its foreign debt payments, which it stopped paying in 2001, back on track and regain access to capital markets.

The government had been putting off the rise in utility rates for many years. In Buenos Aires, residents paid at the most three times less for gas and water than Argentineans in other provinces and even in the periphery areas of the capital.

A middle-class family of four with a monthly water bill of about $1.85 will now expect to pay $5.60 for service.

The cuts in subsidies will only affect private consumers and small businesses, and won’t impact on industries in an effort to boost production. At the same time, Argentineans who reduce their gas consumption will be able to receive discounts on their rates. Since 2011, Argentina has had to rely on gas and fuel imports after domestic production could no longer satisfy consumer demands. However, the foreign purchases have taken their toll on the country’s reserves with dollars becoming scarce in Argentina. This situation led to the government to devalue the peso by allowing banks to sell dollars on the open market.

"Credibility must be restored"


Following an impressive victory last October, Sergio Massa, a deputy for the opposition Renovation Front (FR) party, is one of the new faces emerging in Argentinean politics. While many analysts pin him as a leading contender in next year’s presidential race, the 41-year-old native of San Martín preferred to shrug off these aspirations during a recent tour of the United States.

Still, during his swings through Washington and New York, Massa held talks with top Obama administration officials, lawmakers, bankers, businessmen and law enforcement officials to discuss a range of issues. Massa has given all of them ideas on resolving his country’s grave economic problems and restoring investor confidence that was lost more than a decade ago, when Argentina suspended its foreign debt payments.

“I believe Argentina faces a great challenge to build solid institutions, and generate strong institutional credibility that will pave the way for more investments,” Massa said in an interview with EL PAÍS in Washington.

That credibility has to be reestablished through its foreign policy, which should be centered on bringing back Argentina from years of global isolation, he said.

“We are making important advances at ICSID [International Centre for Settlement of Investment Disputes], Paris Club, and with Repsol; we are also trying to release more credible statistics. These are all steps that we should try to focus on regarding our relations with the rest of the world,” he said.

Over the past few months, the international press has placed the blame for Argentina’s problems on the current and past Peronist governments, including the economic crisis and high inflation.

“The principal causes of Argentina’s failures and frustrations are the perpetual conflicts and divisions that exist. What we need to learn is that a modern society now expects its leaders to look to the future instead of discussing the past.”

In an attempt to try to break away from traditional sectarianism, Massa envisions a new generation of leaders coming together to forge a great plan for the country, much like what Mexican President Enrique Peña Nieto is trying to do with the principle parties in his country who have signed on to the Pact for Mexico – an ambitious plan for reforms aimed at restructuring society.

“My country must decide – even before deciding on candidates – on two agendas: one regarding central policies with education, security, infrastructure, the drug-trafficking fight, environment, and the fight against poverty as the main pillars. The other would be to design a strategic plan for the economy.

“These issues must be discussed outside the electoral climate because they deal with what will happen in the next 30 years in Argentina.”

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