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OP-ED | 12-10-2019 13:33

Grim warnings from Chubut

Chubut is thus an extreme example of the Argentine conundrum of a rich country brought low by fiscal insolvency – all the royalties from over a century of oil wealth around Comodoro Rivadavia have not prevented the province from being crippled by protests against public-sector pay arrears for the last 14 weeks now (and counting).

While the rest of the country braces for the final stages of the election campaign (including tomorrow’s presidential debate) amid a severe economic crisis, the Patagonian province of Chubut has issued a grim warning as to what the future might bring by moving one step ahead in the downward spiral – it cannot even campaign because of the crisis, with the Chubut al Frente ruling provincial party withdrawing all its candidates for Congress on Thursday and suspending all electoral activities. Chubut is thus an extreme example of the Argentine conundrum of a rich country brought low by fiscal insolvency – all the royalties from over a century of oil wealth around Comodoro Rivadavia have not prevented the province from being crippled by protests against public-sector pay arrears for the last 14 weeks now (and counting). No province produces more oil (not even Neuquén with the shale of Vaca Muerta) and yet there are no schools or courts, with the health system in total collapse as Chubut plunges deeper into chaos. The situation is clearly unacceptable. Both the provincial and national governments are failing Chubut’s citizens and something must be done.

Chubut’s current insolvency stems from a vicious circle of deficit and debt. If the public sector has only been paid in staggered trickles since midyear, the immediate cause of this plight was a dollar bond from 2016 with preferred creditor status (i.e. its obligations came ahead of all else), which crowded out the provincial revenues for salaries etc. once devaluation took wing as from last year. The province was then forced to borrow locally in pesos at the exorbitant interest rate of 95 percent in order to pay any salaries at all in the last three months. Meanwhile, the perfectly understandable protests against these pay arrears blocked the private sector (notably the oil industry) whose work is the province’s other source of income, thus creating another vicious circle.

Yet the origin of these vicious circles lies in a chronic deficit primarily caused by a swollen state payroll. In order to pay 46,000 active and 17,000 retired provincial employees, Chubut needs almost 4.5 billion pesos a month. Its revenues fall short of three billion. Chubut Governor Mariano Arcioni (a political outsider only reaching the top by virtue of being the lieutenant-governor of veteran Peronist Mario Das Neves, who succumbed to cancer in 2017) only compounded this situation when he gained re-election last June on the back of promising a 40-percent pay increase to state employees. Clearly overwhelmed by the situation, Arcioni has to take all the heat but he did not help himself by having the bright idea of doubling his salary to over 300,000 pesos amid all the pay arrears. However, it is fair to say the roots of Chubut’s crisis predate him, with unpaid dollar debts stretching back to 2010.

With its roadblocks, frequent assaults on public buildings and the tragic deaths of two teachers last month, Chubut for some may be an extreme example. But the fact remains that provincial governments account for two-thirds of the public-sector payroll nationwide. President Mauricio Macri’s minority government has been too dependent on the provincial clout in Congress to alter this situation with no change in sight if re-elected, while should the opinion polls strongly indicating an opposition landslide prove correct, Alberto Fernández would see the provincial governors as almost his only chance to keep his Frente de Todos running-mate ex-president Cristina Fernández de Kirchner under control.

Meanwhile the rest of the country continues to campaign and if last August’s national PASO primaries said one thing, the last two rounds of provincial voting have said another – in both Mendoza and Salta the mayor of the provincial capital representing an urban middle class defeated the Frente de Todos hopeful, halting an apparently irresistible tide. We have said this before, but Salta is a prime example of how each province is different – there Sergio Massa’s 2015 running-mate defeated Frente de Todos, now including Massa, while last Sunday’s provincial PASO primaries saw local Peronism complete an ideological U-turn from the three terms of outgoing moderate Peronist Governor Juan Manuel Urtubey by enshrining a Kirchnerite as the Frente de Todos candidate, with many of Urtubey’s voters feeding the triumph of Salta City Mayor Gustavo Sáenz

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