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economy ECONOMIC OUTLOOK

Government’s to ‘advance’ state worker payments after Budget approval

Central Bank reviewing benchmark interest rates; Macri administration moves to fend off unrest with early payments.

Saturday 17 November, 2018
Senators vote on the Budget proposal.
Senators vote on the Budget proposal. Foto:CEDOC

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The government is advancing with plans to reduce social unrest among state employees ahead of the G20 Leaders Summit, indicating it will pay workers their aguinaldos and end-of-year bonuses early. The move to head off discontent by providing early payments of salaries comes in the wake of the move last week to issue all private-sector employees with a 5,000-peso bonus, which will arrive in two equal payments in payslips for November and January.

State workers due to receive a bonus and their aguinaldo complementary salary will be “advanced” that money, the Finance Ministry confirmed yesterday. Those amounts were scheduled to be paid on January 2 but the Mauricio Macri administration has decided to move forward the date by two weeks, officials said. It will reach public-sector employees between December 12 to 14, depending on where they work.

The move comes on the back of a host of economic news in recent days, both positive and negative. On Thursday, the INDEC national statistics bureau reported that inflation in October came in at 5.4 percent, illustrating the extent at which inflation – which for the year so far now totals 39.5 percent – is continuing to outstrip purchasing-power.

At press time, it also emerged that the Central Bank could eliminate its benchmark interest rate floor – set at 60 percent, the highest rate in the world – as soon as December 3. Sources inside the institution told Reuters and Bloomberg that if “inflation expectations dip for two months in a row,” a decision could be made.

On Thursday, the government received a boost when lawmakers in the Senate approved the Mauricio Macri administration’s budget proposal for 2019, one that will cut social spending and raise debt payments to meet conditions agreed in securing a credit-line from the International Monetary Fund (IMF).

After more than 12 hours of debate, the vote on the spending blueprint for 2019 – which passed the lower house of Congress last month – was 45 in favour, 24 against and one abstention.

Minor amendments to the bill, however, will see it returned to the Chamber of Deputies for final approval.Still, the passage of the proposal was relatively smooth for the government. Senator for Santa Cruz province (UCR), Eduardo Costa, was the only Cambiemos (Let’s Change) lawmaker to vote against the proposal.

He said “the project does not guarantee funds to reactivate [dormant] public works [projects]” in his province.

Unrest was, for the most part, kept outside. Unions and civic groups protested outside the Congress building during a debate that lasted into the wee hours of Thursday. But the demonstrations were far less boisterous than street unrest triggered by the vote in the lower chamber last month, which at one point caused debate to be suspended.

“The people are against this budget. They were against the idea of asking the IMF for a loan. But no-one hears us,” said one demonstrator, Ana María de Jesús, 67.

Macri welcomed the result of the vote on Thursday. “This is something we set out to achieve for a majority of Argentines who understand that we have to begin to be responsible, serious, that we cannot continue to live above our means,” he said.

‘VERY POSITIVE STEP’

IMF spokesman Gerry Rice told reporters in Washington that passage of the budget law was a “very positive step” that “points to a clear commitment by the Argentine authorities and a broad spectrum of Argentina’s political forces to strength the country’s economic policies.” However, former president and sitting senator for Buenos Aires province, Cristina Fernández de Kirchner, said the budget would only “deepen the suffering of the Argentine people.”

“What we are going to do with this budget is deepen the suffering of Argentine society, and it will be a useless sacrifice,” she said. “We all know that the recession is going to deepen.” Pro-government Senator Luis Naidenoff called it an “emergency budget” forced by economic problems that include a slumping GDP, high inflation and rising unemployment.

PREDICTIONS

The budget projects a 0.5 percent slide in GDP and a 23 percent inflation rate by year-end, down from 44 percent this year. It will also cut the primary deficit before debt payments to zero — down from 2.6 percent of GDP this year.

Critics say it slashes social spending by some 35 percent once inflation is accounted for. It also calls for a 50-percent increase in debt service payments in peso terms.

The cuts were called for in a US$6.3-billion addition to an earlier US$50-billion IMF credit line. The bail-out is supposed to help Argentina recover from an economic crisis that has seen the peso lose half of its value this year.

President Macri has pledged a swathe of cuts in healthcare, education, science, transportation, public works and culture next year to the tune of US$10 billion.

Street protests have reflected growing public anger after Macri slashed traditionally safe civil service jobs as part of a bid to cut the fiscal deficit and tame inflation at the IMF’s behest. Macri’s Cambiemos (Let’s Change) coalition lacks a majority in Congress so it needed support from some Peronists in the Justicialist Part (PT) Jto get the budget passed.

The budget “calls for sacrifice as part of a crisis that blew up everything. Voting against it would send a very bad signal at the international level,” said Miguel Ángel Pichetto, head of the PJ caucus in the upper house.

Despite all the complaints, the vote Thursday went smoothly as Macri has reached agreement with provinces and their governors on providing them with financing even with all the spending cuts.

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