beyondbrics

January 6 is traditionally a gift-giving day in Argentina – the Epiphany, or “Reyes” (Kings) as it is known here, can be expected to bring (at least for children) a present to round off the Christmas season.

But this year, it marks the start of what promises to be a raft of tariff hikes. The Buenos Aires underground railway, or “subte”, will go up by 127 per cent to 2.5 pesos ($0.58) on that day, following its transfer to city government control and the federal government’s commitment to pay (and for one year only) half the subsidy that has kept the ticket price so low for so long.

As this article in opposition business daily El Cronista Comercial makes clear, it is only the third rise in subte ticket prices in a decade. The city government says the price has long lagged other services – the cost of hailing a taxi has soared more than 670 per cent in the same period, for example.

But for many low-income workers, such a hike in their commuting costs will be hard to manage, particularly since bus tickets remain subsidised by the central government and typical journeys cost a maximum of 1.25 pesos. The underground price hike has caused a storm of protest and union leaders are considering action to try to block it.

Argentines can expect more pain. Transferring the subte to the city government was one of the central government’s decisions to reduce an unsustainable subsidies bill (see this graphic). Another is to withdraw subsidies from residential gas and electricity bills for those customers who don’t need them. Rich neighbourhoods have already started getting the new higher bills, and more will follow.

Clarín, a newspaper fiercely critical of the government, on Thursday reported another wallop for consumers: the charge to cover Argentina’s growing gas imports will rise as much as 248 per cent for residential clients, it said – something the government has not confirmed. That would be separate to the withrdrawal of subsidies, which consumer groups reckon could at least double many people’s bills.

All this is likely to have two results: pain for consumers, who already face inflation estimated to have been 22 to 25 per cent last year and probably still 20 per cent this year; and higher wage demands. Argentines voted Cristina Fernández back in for a second term by a landslide last October because of the feelgood factor – the economy boomed around 9 per cent in 2011, according to the government, and many wages almost kept pace with inflation.

Argentina traditionally spends the early months of the year hammering out collective wage agreements – something the government would now like to keep a lid on, as growth is expected to slow sharply this year (to some 4 per cent). But Subte workers have wasted no time in demanding a 30 per cent hike and with rises in the cost of living in the pipeline, more will surely follow. It looks like being a bumpy start to 2012.

Related reading:
Fernández: back to work, beyondbrics
Kirchner goes pro-market. Maybe, beyondbrics
Argentina’s debt: quantified, beyondbrics
Argentina: A high-risk recovery, FT