Argentina announces the end of energy subsidies to the wealthiest households

What had been in the pipeline for several months has now been confirmed: energy aid will be reshaped in Argentina in order, in particular, to put an end to the windfall effect for the wealthiest households. Three days of public hearings, from Tuesday May 10 to Thursday May 12, confirmed this. With spiraling inflation – 58% over one year in April – and 37% of Argentines living in poverty, the centre-left government has ruled out the option of a general increase in aid in favor of a scheme “segmented” which it intends to bring into force from June.

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In detail, households forming the richest decile will no longer benefit from state aid. This represents more than 921,000 households for the electricity part, and more than 700,000 for gas. The increases will then be partial and staggered: the so-called intermediate group, ie 65% of households, will see their gas bill increase by 20%, that of electricity by 17%. Gas will not increase for the most vulnerable households and their electricity bill will increase by 5% to 6%. This aid represented 2.3% of GDP in 2022, indicates the Ministry of the Economy, which intends to trim this spending by 0.6 points. All households have already seen their bill increase by 20% in March.

“We cannot subsidize the richest households, because they are able to pay their bills”explain sources from the Ministry of the Economy, taking up the argument of the incumbent minister, Martin Guzman, who castigated a functioning “close”. But the government is walking on eggshells. The grant discount is a bone of contention with Vice President Cristina Fernandez de Kirchner and her followers. For its supporters, the freezing of gas and electricity bills (activated in 2020, but also in 2019, by the former center-right president Mauricio Macri, after large increases) is supposed to spare the wallets of households, heckled by inflation, and limit the overheating of prices.

Obligations to the IMF

The future reduction of energy subsidies is also part of Argentina’s formal obligations to the IMF, as part of the restructuring of its loan of 45 billion dollars (43 billion euros), formally concluded in March. This turn of the screw corresponds to objectives of budgetary discipline. The deficit must be reduced to 2.5% of gross domestic product in 2022, to 1.9% in 2023, then to 0.9% in 2024. However, according to a report from the Rosario Stock Exchange, dating from November 2021, energy aid represents almost 10% of State expenditure. With an agreement that does not provide for an austerity policy – ​​in particular pension or labor market reform – and a population tested by repeated crises, cutting subsidies appears to be one of the government’s limited leeway. .

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