ARGENTINA: Big energy firms and wealthy households to lose utility subsides which have been straining state finances.

Record ID: 446748

  • Title: ARGENTINA: Big energy firms and wealthy households to lose utility subsides which have been straining state finances.
  • Date: 17th November 2011
  • Summary: BUENOS AIRES, ARGENTINA (NOVEMBER 16, 2011) (REUTERS) VARIOUS BUILDINGS AND BOATS IN UPPER CLASS PUERTO MADERO NEIGHBOURHOOD WHERE SUBSIDIES ARE ENDING
  • Embargoed: 2nd December 2011 12:00
  • Keywords:
  • Location: Argentina, Argentina
  • Country: Argentina
  • Topics: Economy,Politics
  • Reuters ID: LVA8INN6JIWK7A7S5PPG4WYGH2KS
  • Story Text: Argentina's government will cut more than $800 million dollars in utility subsidies from homes and businesses as it seeks to ease a growing burden on state finances, officials said on Wednesday (November 16).
    The announcement came two weeks after the center-left government said it would review billions of dollars in water, natural gas and electricity subsidies in a move welcomed by Wall Street.
    President Cristina Fernandez won easy re-election last month, raising speculation she might try to cut back popular subsidies after the election.
    Economy Minister Amado Boudou said utility subsidies, mainly on natural gas and power supplies, would be withdrawn from big companies that produce fuels and agrochemicals.
    "[They are] new measures that have to do with removing 100 percent of subsidies for the biggest businesses from some sectors of the economy," Boudou said.
    When Boudou announced the subsidy shake-up earlier this month he said subsidy cuts of about $140 million a year would be made as a first step. Wednesday's announcement brings the total savings announced so far to almost $1 billion.
    Utility subsidies will also be withdrawn from high-income families as the government looks to weed out benefactors who don't need state assistance.
    "The personalization of subsidiesthe broad [application] of subsidies to become individual. What we are looking for, clearly, is to advance towards a more balanced approach and ensure these resources go to those who need them and not to those who don't need them," Planning Minister Julio de Vido said.
    The cuts will save the state 3.978 billion pesos ($830 million dollars) per year and begin to come into force on December 1.
    Utility tariffs were frozen 10 years ago to ease the pain of a devaluation and sharp recession.
    In 2005, subsidy payouts accounted for less than 5 percent of primary state spending. Five years later, that figure topped 12 percent, according to private estimates.
    "The almost $4 billion [pesos] that we are saving today on top of the $600 million [pesos] we are almost to 4.6 billion pesos, which to me seems like an excellent measure and a good signal, a clear signal to the markets in the sense of where the government is headed," de Vido added.
    Investors keep a close eye on Argentina's public coffers because the country has yet to return to global credit markets nine years after its mammoth $100 billion default.
    A worsening global outlook and dwindling primary budget surplus have raised questions about the sustainability of Fernandez's big spending policies and economists have said tackling the subsidies should be a priority.
    However, Argentine consumers have got used to tariffs that lower overall expenses as annual inflation runs at more than 20 percent. Any widespread, sudden reduction of subsidies would likely prove unpopular.
    Public outrage forced Fernandez to backtrack when she tried to remove some in 2009.
    Since then, "Subsidized by the State" has been written across utility bills in large, red letters and posted on the side of buses. Consumers are also reminded how much more their bill would cost in neighbouring countries.
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