Tag Archive | "subsidies"

Argentina News Roundup: 27th March 2014

The senate debate the government's agreement with Repsol (photo: Fernando Sturla/Telam/ddc)

The senate debate the government’s agreement with Repsol (photo: Fernando Sturla/Telam/ddc)

Senate Ratifies Agreement with Repsol: Last night, Argentina’s senate approved the agreement met between the government and Repsol over 2012’s expropriation of 51% of YPF‘s shares from the Spanish oil giant. After 11 hours of debate, the senate passed the bill with 42 votes in favour, 18 against and 8 abstentions, paving the way for the ratification of the law. Repsol and the government of Cristina Fernández de Kirchner signed the settlement on 27th February, which consists of a fixed package of three types of sovereign bonds with a nominal value of US$5bn, and a complementary package of three other bonds worth a maximum of US$1bn, to cover any reductions in the market value of the first package. The agreement will allow the government to move forward with investments in YPF, bringing the two-year quarrel with Spain to an end. 

Reduction in Gas and Water Subsidies: Economy Minister Axel Kicillof has announced that the government is rolling back gas and water subsidies for households and businesses, with the money re-diverted to government social programmes Asignación Universal por Hijo and Progresar. Industries will be exempt from the new plan, which aims to promote “responsible consumerism”. In general terms, the cuts will of be around 20%, but in the cases of the highest consumers, the subsidy reduction for gas could reach 80%. For water, around 65% of households will have their subsidies reduced by $1-2 pesos per day, with the other 35% seeing an increase of $2.60 per day, based on neighbourhood. The partial removal will be rolled out over the coming months, with the full subsidy reduction in place by 1st August. Kicillof confirmed that those who already receive government benefits, such as social programmes, will continue to have their utilities bills subsidised.

FAO: “Zero Hunger Targets Met”: According to a report released by the UN’s Food and Agriculture Organisation (FAO), Argentina has met its target of ‘zero hunger’. The report, entitled ‘Hunger in Latin America and the Caribbean: Approaching the Millenium Targets’, data shows that the country, along with Venezuela and Chile, have met their goal of lower than 5% hunger. The government programme Asignación Universal por Hijo, a government allowance for low-income families whose children go to school, which was last year extended to include an allowance for pregnant women, is highlighted as being a fundamental pars of the reduction in hunger. Such policies are commended as being a more “complete” approach to tackling hunger, as they act as a compliment to other household incomes, allowing for the basic levels of food consumption to be met. The programme covered 3.5m people in 2012, costing the country almost US$2m.

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Economy Minister Confirms Energy Subsidies To Continue

Minister of Economy, Axel Kicillof (photo:Wikimedia commons)

Minister of Economy, Axel Kicillof (photo: Wikimedia commons)

Minister of Economy, Axel Kicillof, and Minister of Federal Planning, Julio De Vido affirmed Thursday that there would be no changes in the government’s subsidy policy for gas and oil.

Axel Kicillof emphasised that the policy of energy subsidies has “been the vector of competitiveness and growth and, hence, social inclusion.”

“They formed the backbone of the 7% growth rate annually over the past 10 years,” he added.

Kicillof also discussed an extension of the so-called Plan Gas 1 subsidies to include small and medium-sized oil companies who currently produce less than 3.5 million cubic meters a day and aspire to produce more than 5 million cubic meters.

The incentive program will pay out an estimated US$677m over four years to 50 producers to increase production. Many large hydrocarbon companies already benefit from the plan, which is voluntary. The goal, according to Kicillof, is to “substitute imports in order to regain sovereignty and energy self-sufficiency by 2017.”

De Vido explained that the programme’s goals include an estimated US$2.5bn in investment, the creation of 1,000 jobs, and an estimated saving of US$3bn by way of import substitution.

Despite large natural reserves, Argentina is a net importer of gas and oil, and is working to confront the challenges to reducing its energy deficit.

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Rosario: Local Authorities Open Attention Centre for Victims of Explosion

The aftermath of the Rosario explosion (photo: José Granata/Télam/dsl)

The aftermath of the Rosario explosion (photo: José Granata/Télam/dsl)

The authorities of Rosario and Santa Fe province opened today an attention centre for the victims of last week’s explosion.

The victims of the explosion in the Salta street building -including those who were in the vicinity when the explosion occurred- can access this centre from today, where they will be able to obtain subsidies and bank credits from the Rosario government as well as from the provincial and national governments.

“From today between 8am and 4pm, in the government Civic Centre, located between Santa Fe and Dorrego streets, residents of the affected zone will be received”, said Monica Bifarello from the Social Development Ministry of Santa Fe.

“The Integral Assistance Programme is for those who will be away from their home for a long time”, she explained. “[The process] is simple, victims have to present an identity document and then the personnel at the Attention Centre will check the lists we already have. There are no major requirements.”

Victims of the explosion can ask for $20,000 to rent a new house. If their housing has been totally destroyed, they can request up to $50.000. “The subsidies will be granted, whether [the claimants] are owners or tenants.”

Last Tuesday’s explosion has so far left 19 people dead -a new victim was found this morning- and the authorities are still searching for missing people.

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President Announces Subsidies For Tucumán Producers

President Cristina Fernández de Kirchner (courtesy of Wikipedia)

President Cristina Fernández de Kirchner (courtesy of Wikipedia)

Argentine president Cristina Fernández de Kirchner announced almost $12 million in subsidies for small and medium-sized producers in Tucumán during a videoconference with Minister for Agriculture, Livestock and Fishing Norberto Yauhar and Tucumán Governor José Alperovich. The act took place at the headquarters of the Cooperative of Herrera Campo, located in the Famaillá.

Yauhar emphasised the role of small and medium-sizes producers, stating that they are “fundamental for creating a country which everyone longs for.” At the same time he added: “We are demanding a more inclusive nation, a different Argentina with more room for producers and an equal opportunity for all.” The subsidies will make it easier for farmers who grow sugar canes, as well as support wineries in Amaicha area and improve the access and quality of drinking water.

“This is part of the agricultural policy that the national government has promoted to improve the development of small-scale producers through concrete tools that cause their productivity to grow. And for this, it is essential to work together,” said the agricultural minister.

Tucumán Governor Alperovich was full of praise saying that “thanks to minister Yauhar the people of the countryside will be able to stay at home, because there is no more need to move to bigger cities.”

Under the plan, the government will provide $300,000 to buy a cane harvester and a system to prevent pollution from burning sugar canes plants. Another $1.7million goes to the Indigenous Community of Amaicha del Valle to help 150 small wine producers. The commune of Santa Rosa will receive another $300,000 and León Rouges $1.5 million to build water wells and irrigation systems.

Another $3.5million will be used to launch a ‘Social Agricultural Plan’, while local small horticultural producers affected by hail will receive $2million in subsidies.

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National Government will not Pay Subte Subsidies with 2013 Budget

Vice-president of the Financial Commission of the Chamber of Deputies, Fernando Yarade, announced yesterday that the national government would no longer pay for half the subte subsidies in 2013.

The shift is in accordance with the deal made on 10th November 2011, when the then-Secretary of National Transportation Juan Pablo Schiavi, agreed to transfer the city’s subte and train lines over to the government of the City of Buenos Aires. As a part of the exchange Schiavi agreed that the national government would pay for 50% of the subte subsidies for one year.

The pressure will now fall on Mauricio Macri’s government to come up with the roughly $325.8m extra per year, according to La Nacion. He will also have to start negotiating with the metro workers, who are demanding a salary increase of a minimum of 25%.

The change was announced as a part of the government’s 2013 budget, which is being discussed this week. The government started releasing some of the measures and numbers yesterday.

The budget is a reflection of, “a growth of 4.6% and an inflation rate of 8.9%,” said Yarade.

Latin America’s third economy has slowed sharply this year after the government predicted a 5.1% growth in its 2012 budget. That estimate however, is expected to change with the release of the 2013 budget.

Yarade also explained that the country’s financial plan will “try to keep up with demand, which in 2011 meant a gross investment of 24.5% of the GDP.”

“In 2012 the growth has been sustained by consumption. This includes a 7.1% unemployment rate, which is the lowest it has been in the last ten years,” continued Yarade.

The Vice-president of the Financial Commission ended by applauding the growth rate in 2011 and all Argentines for their efforts in making it happen, “this is an effort by all Argentines and the national executive who knew how to manage the economy for the good of all.”

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President Opens Legislative Year, Defends Kirchnerism

In today’s meeting to start the new legislative year, the fifth such occasion since President Cristina Fernández de Kirchner’s election in 2007, the president defended the policy of subsidies and the economic model since 2003.

The president’s speech, which was preceded by a moment of silence for the victims of last week’s train accident in Once, reiterated the strengths of the policies of the past nine years and cited accomplishments in social programs, industry growth, and imports.

“Argentina is still going through one of its most prosperous stages in terms of economic growth, within a delicate global situation,” the president said.

She further pointed out that the IMF has placed Argentina third behind China and India in terms of economic growth in 2011. Areas such as construction and healthcare were given emphasis as signs that the country’s growth is raising employment and extending to vulnerable sectors of the population.

Specifically, the president aimed to defend her trade and subsidy policies from critics.

“I want to demystify and respond to voices who say that defending national industry and establishing a foreign trade administration is sacrilege,” Fernández de Kirchner said. “We are a country that has imported significantly, compared to those who say we put up protectionist barriers.”

The president cited figures from among the G-20 indicating that Argentina showed the second greatest increase in imports during 2011.

Among other points discussed were the effectiveness of the universal child allowance program, the payment of Boden 2012 bonds to remunerate citizens for money lost in the “Corralito”, and relations with the Spanish-Argentina oil company YPF.

“I never tire of appealing to unity, organisation, and the right information for everyone,” said the president. “All those who have responsibilities as governors, mayors, legislators, businessmen, labour and social leaders, and citizens generally have a clear awareness of the world in which we live and the country we have built through the efforts of everyone.”

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Government Warns of No Subsidy for Passengers Without SUBE

The Argentine government released an ad campaign informing that after 10 February bus passengers who do not pay for their tickets with a SUBE card will not get subsidised. Official authorities have not yet disclosed the price of bus and train tickets without the subsidy.

“From 10 February on, if you want to travel by train or bus in the metropolitan area and you do not have a SUBE card, you are going to miss on the subsidy and your ticket will be more expensive,” says an official advertisement from Casa Rosada.

“But if you have your SUBE card, you are going to pay the same you are paying today.” The advert also warns passengers: “For a while now we have been telling you to get your SUBE card. If you have not done it, do it now.”

The announcement has already caused long queues in both train and bus stations to get the card today.
Fernando Blanco Muiño, president of the Argentine Consumers Union (UCA), said the implementation of the SUBE cards in public transportation is developing in an “unorganised and uninformed” way.

Muiño also claimed that an increase in bus and train tickets is “almost certain”.

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Utility Subsidies: On Their Way Out

Gas (Photo by Michael W. May)

The Argentine federal government has made a series of announcements over the last month stating that drastic cuts will be made to the country’s public utilities subsidy programme, which has been in place since 2003.

The measures will cause a significant rise in the electric, water and gas expenses, first affecting large businesses and wealthy residents before being applied more generally. The policy has already gone into effect (on 1st December) for corporations, while residents in targeted neighborhoods will see increases in their utility bills beginning 1st January. All government public buildings in the city of Buenos Aires will lose their benefits as well.

The cuts initially target high profitability businesses such as financial firms, casinos, international airports, mining corporations, mobile phone companies under national jurisdiction, hydrocarbon extraction companies and water, gas and electric corporations. Companies dealing in agrochemicals, biofuels, natural gas processing and oil refining will also lose their subsidy benefits.

“Nobody should receive a subsidy that they don’t need,” says Federal Planning Minister Julio de Vido. De Vido is in charge of monitoring utilities, energy and transportation in Argentina.

The Reason Behind the Cuts

The government will save an estimated $4.8bn (US$1.1bn) annually as a result of the subsidy withdrawals. This still reflects only a fraction of the $70bn in subsidies – according to private estimates – that the government will spend in 2011.

Public spending increased dramatically in the months leading up to President Cristina Fernández de Kirchner’s landslide re-election this past October, though officials are denying that the subsidy cuts are related to recovering these costs. The state’s goal, they say, is not to curb spending, but to channel money where it is most needed.

“It is not a fiscal matter”, said Federal Economy Minister and Vice-President elect Amado Boudou when announcing the rollback of subsidies. “It has to do with redirecting the subsidies.”

The manner in which the subsidies will be withdrawn supports this claim. Beginning at the start of next year, people living in the most affluent areas of the city will notice their utility bills rise by at least 100%. About 260,000 households in neighborhoods including Puerto Madero, Retiro, Recoleta, Palermo, and Belgrano will be subject to subsidy cuts, as well as gated communities, known as ‘countries’, outside of the capital.

Meanwhile, in a unique move that it sees as a way of personalising subsidies, the government is offering residents in all areas the opportunity to voluntarily give up the benefit. The idea is that those who do not need to pay less, agree to pay more.

Additionally, those who feel that they do need the subsidy can apply to continue to receive it based on their financial circumstances. The government will cross-check consumers’ applications with their social security and tax registers to decide on eligibility.

This rather unorthodox method of attempting to identify residents who truly need the subsidy is only a short-term fix, says Marcos Makón, President of the non-profit group, Argentina Association of Budget and Public Finance Administration (ASAP). “The defining problem,” says Makón, “is knowing exactly what the income level is and what are the specific individual circumstances of families, beginning first with those people who are targeted to lose the subsidy benefit.”

How Did the Subsidies Begin?

Water (Photo: Mouin)

Argentina implemented the subsidy programmes almost ten years ago as a way to spur an economy recovery from a deep recession and help households cope with the soaring inflation that followed the megadevaluation early in 2002.

In 2003, under the administration of President Néstor Kirchner, the late husband of current President Cristina Fernández de Kirchner, the tariffs of privatised utilities were frozen and subsidised in order to help companies provide goods and services at prices that more of the population could afford.

The idea seemed to work: consumer spending power increased, exports became competitive, and the economy grew at an average rate of 8% between 2003 and 2011.

Nevertheless, there have been some drawbacks to the plan.

Professor of Public Finance Martin Besfamille of Di Tella University in Buenos Aires says that the subsidies are universal – meaning that everyone receives the benefits – yet they are not entirely redistributive.

“For example,” says Besfamille, “rich people pay ridiculously low monthly prices for natural gas, while some very poor individuals [who do not have natural gas lines into their homes], have to pay the same price for a tank of liquid petroleum gas whose duration is much less than one month”.

Subsidised services also tend to increase demand. This results in overuse of the service and product waste. To illustrate, the use of air conditioning has increased greatly in the last decade simply because electricity prices are so low that households do not worry about their cost.

Greenpeace, a global environmental organisation, recently voluntarily renounced their utility subsidies as a way of advocating the use of cleaner energy resources. Executive Director Martín Prieto announced in November: “These subsidies should never have existed; nevertheless, it is a good first step in democratizing the access to energy, abandoning fossil fuels and going forward towards an energy revolution based on renewable resources.”

Another disadvantage is that subsidised services frequently have inefficient operations. “Because businesses receive subsidies free of objective considerations (with no strings attached), the quality of their service tends to be low”, says Besfamille.

One can see this in Retiro train station. There are no ticket collectors, so few people buy a ticket. Besfamille says, “Since the tariff of trains has been frozen since 2003, the main part of the companies’ income comes from the subsidies. Therefore, for just 1.20 pesos, it is very expensive to enforce. If the tariff is 4 pesos, the cost-benefit analysis of enforcement changes rapidly.” In other words, for the train company, it is simply not worth the cost of employing ticket collectors to collect fares of such little value.

Electricity (Photo: Martin Terber)

What Should be Done Now?

While many government officials, private economists, and much of the general population seem agree that it is time for subsidies to be eliminated, there is still the question of how the government should handle this removal after eight years. Some say that cutting subsidies should have been done five or six years ago, and in a gradual manner.

There are several factors to consider. Politically speaking, many consumers who have been dependent on the government’s financial help now see the utility benefits as their “right”, and will be looking for other means of compensation. And on the economic side, an abrupt increase in utility costs for consumers will certainly decrease consumption, which is likely to have a negative effect on economic growth.

Withdrawing the long-time subsidies suddenly, which was one of the state’s first major policy decisions after President Fernández’s overwhelming re-election win, will have a bigger impact on inflation than if their removal had been gradual.

Making accurate and financially prudent decisions over subsidy redistributions will require a careful case-by-case evaluation says Makón. “For companies that have high expenses, an abrupt elimination of their subsidies could generate higher prices for their goods and services.” Makón believes that subsidies should help businesses control current costs, but should not be a mechanism for future growth of the company.

Finally, the implementation of subsidy reform is a complicated process. Besfamille raises concerns over the government’s ability to design and enforce a new plan. “In a country where, according to the best estimations, almost 50% of the income tax and 30% of the sales tax is evaded, can someone seriously believe that the government will be able to determine that individuals, who have declared themselves to need the subsidy, are really needy?”

Although no independent assessment of the subsidy reduction plan has been made, the government insists that the economy will not be negatively affected by the cuts. Government authorities say small and medium-sized business, which create the most jobs, will still receive subsidies and will therefore continue to perform well.

More subsidy cuts are expected to be announced in the coming weeks. There is speculation that the heavily subsidized city bus system is next in line to lose government benefits. Without the subsidy, the price of a bus ticket could increase from $1.25 to $4.00.

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What do you think about the removal of subsidies for utilities?

The Argentine federal government has begun to withdraw the country’s public utilities subsidy program, which has been in place since 2003. The measures will cause a significant rise in the electric, water and gas expenses, first affecting large businesses and wealthy residents before being applied more generally.

The government says it the subsidies need to be withdrawn so as to better channel social spending programmes to those who need. Others worry about the impact on growth and inflation.

The Argentina Independent went out to ask locals what they think of the measure, as well as rumour that subsidies on public transport will be the next to go.

Sergio Saenz, 47, shopkeeper, San Telmo

I think there are both good and bad aspects to the government’s plan. On the one hand I think it does have to be done, but on the other it will make life more difficult for some. The country is in a more stable situation now though than when the subsidies were brought in so we can’t expect to have them indefinitely. It will have an effect on me, but I’m not sure how big or small that effect will be, and there will be people who are worse affected. Apparently the government might take away the subsidies for public transport as well though, and that is something that worries me as I use it often.

Sebastien Rojas, 24, student, Recoleta

I think it has to be done and for those people like property owners, or those living in good neighbourhoods, it won’t really make much of a difference. But for people who don’t own their own homes it will be difficult. Living in Recoleta I’m sure to have to pay more and it will affect my monthly budget, but at the moment I am not sure by how much. I don’t think they will take away the subsidies associated with public transport though. If that happens it will have a much broader effect because everyone in the city uses public transport, not just people living in neighbourhoods like Palermo or Recoleta. Everyone uses them but not everyone would be able to pay.

Cintia Serruya, 34, bank employee, Parque Chas

I think the plan to take away subsidies is fair in principle. At the moment, it is shocking because we are not used to having to pay the amount we are going to have to pay, but after a while people will not mind. Obviously it will have an effect on my monthly budget but that effect shouldn’t be too great. I save quite well so it will just mean adapting, which shouldn’t be too hard.


Viviana Pszenny, 62, biologist, Palermo

It does seem to be necessary to take away the subsidies but I am not convinced that it will actually better the economic situation. I would like to know exactly what is happening to the money that they are saving – where is it going? It is interesting that the government has decided to put this plan into action now, just after the elections, when no one can do anything about it. It is all very well to take away the subsidies but I hope the money gets used wisely.

Carolina Birchner, 25, student, Palermo

Having moved here to study from a small town in the interior I was amazed at how cheap the water, light and gas services were. It is much more expensive where I come from. But now that I have got used to the prices here it will be a struggle to pay more from the 1st January. As a student I have to rely on money from my parents so if the prices become too high, as high as we pay at home, it will mean either moving to a cheaper place, or asking my parents for more money. I have heard rumours that they plan to take away subsidies for public transport as well. If they do plan to take away those subsidies, I think they should raise the price a bit, but I have heard they might double them. That would be impossible for a lot of people to pay. They would have to find a middle ground.

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Gas Distributors to Send Subsidies ‘Questionnaire’

The National Gas Regulating Body (ENARGAS) has announced that all gas distributors have been instructed to send a questionnaire, along with an legal declaration form, to each gas user detailing the requirements they have to meet in order to continue receiving subsidies.

The announcement, part of resolution 1993/2011, was made today in the ‘Boletín Oficial’.

The users must fill in the questionnaire, consisting of a table with 12 possible options, and return it within 30 days to remain eligible.

An applicant will then be visited by a social worker, who will verify the information given, and “start the process of exemption”.

The announcement also formalised the implementation of Decree 2067/08, which deprives residents in certain neighbourhoods, including Puerto Madero, of the opportunity to continue to receive the subsidies associated with gas, which the government is in the process of phasing out.

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