--Argentina pledges to trim its huge subsidy bill
--Planning Minister announces elimination of subsidies for a number of industries
--Energy subsidies have become especially onerous in recent years
(Updates throughout with background and comments by ministers)
OF DOW JONES NEWSWIRES
BUENOS AIRES (Dow Jones)--Argentina's federal government said Wednesday it will overhaul expensive energy and transportation subsidies that have become a growing burden on public finances.
"We are starting a new stage in the personalization of subsidies...no one should receive a subsidy they don't need because at the end of the day everyone else pays," Planning Minister Julio De Vido said in a televised press conference.
De Vido said public utility rates that consumers pay will remain unchanged.
Effective immediately, he said financial companies, mobile operators and resource extraction firms, among other sectors, will no longer receive water, gas and electricity subsidies for annual savings of 600 million pesos ($142 million).
The federal government also start talks this week to hand over the Buenos Aires subway system, which requires about ARS700 million a year in subsidies, to the city government, De Vido said.
Economy Minister Amado Boudou said the government will set up a commission to review and recommend changes to the subsidy regime that will be implemented "as soon as possible."
Boudou said local factors and an international backdrop colored by slow growth and volatility made a review of the subsidies necessary.
It remains to be seen if the government's pledge to trim its subsidy bill is a one-off measure or part of a broader fiscal stabilization program aimed at bringing down double-digit unemployment.
The government's fiscal surplus has largely evaporated due to elevated spending on social programs, subsidies and infrastructure.
Government spending and the central bank's loose monetary policy have contributed to annual inflation that most private-sector economists say is running between 20% and 25%.
"The elimination and/or reduction of some of the subsidies will add pressure to the already challenging high inflation picture, but this is still a necessary step in the right direction for budgetary and economic reasons," Goldman Sachs economist Alberto Ramos said in a note.
Cheap utility services and public transportation are a key pillar of President Cristina Kirchner's economic program that favors high growth. Those subsidies have allowed consumers to spend more, while industry has benefited from low-cost gas and electricity.
Argentina's economy is expected to grow about 8% this year, after expanding at an average annual rate of 7.6% between 2003 and 2010.
"Subsidy policies have played a role in the success of Argentina's economic development in those years," Boudou said.
But government outlays on energy subsidies have exploded in recent years as a booming economy and capped natural gas and electricity rates have led to a surge in energy consumption.
ASAP, a non-governmental organization dedicated to improving public-sector finances, estimates energy subsidies totaled ARS19.2 billion in the first half of the year alone, or about 10% of total government spending. Those subsidies were ARS26.0 billion for all of 2010, and just ARS2.1 billion in 2005.
Natural gas price caps have discouraged investment in local production and forced the government to import growing volumes of much more expensive gas from Bolivia and Trinidad & Tobago even though Argentina is thought to hold some of the largest untapped reserves of shale gas in the Americas.
The supply situation has become so precarious that in the cold winter months the government rations gas to industrial users to make sure residential demand is met.
At the same time, energy imports have become a major drag on the trade surplus. Argentina swung to a trade deficit in energy and fuels of $3.0 billion in the January-through-September period, compared with a $1.1 billion surplus a year ago.
Argentina's Merval index of leading shares was recently trading 0.2% higher, led by gains in electric utility stocks. The peso was quoted trading on Argentina's MAE wholesale foreign exchange market at ARS4.2500 to the U.S. dollar, compared to ARS4.2380 at Tuesday's close.
-By Ken Parks, Dow Jones Newswires; 54-11-4103-6740;
ken.parks@dowjones.com
(END) Dow Jones Newswires
November 02, 2011 12:44 ET (16:44 GMT)
DJ CORRECT: Argentina's Government To Overhaul Costly Subsidy Regime
(The item "UPDATE: Argentina's Government To Overhaul Costly Subsidy Regime" published at 16:44 GMT incorrectly said unemployment instead of inflation in eighth paragraph)
By Ken Parks
OF DOW JONES NEWSWIRES
BUENOS AIRES (Dow Jones)--Argentina's federal government said Wednesday it will overhaul expensive energy and transportation subsidies that have become a growing burden on public finances.
"We are starting a new stage in the personalization of subsidies...no one should receive a subsidy they don't need because at the end of the day everyone else pays," Planning Minister Julio De Vido said in a televised press conference.
De Vido said public utility rates that consumers pay will remain unchanged.
Effective immediately, he said financial companies, mobile operators and resource extraction firms, among other sectors, will no longer receive water, gas and electricity subsidies for annual savings of 600 million pesos ($142 million).
The federal government also start talks this week to hand over the Buenos Aires subway system, which requires about ARS700 million a year in subsidies, to the city government, De Vido said.
Economy Minister Amado Boudou said the government will set up a commission to review and recommend changes to the subsidy regime that will be implemented "as soon as possible."
Boudou said local factors and an international backdrop colored by slow growth and volatility made a review of the subsidies necessary.
It remains to be seen if the government's pledge to trim its subsidy bill is a one-off measure or part of a broader fiscal stabilization program aimed at bringing down double-digit inflation.
The government's fiscal surplus has largely evaporated due to elevated spending on social programs, subsidies and infrastructure.
Government spending and the central bank's loose monetary policy have contributed to annual inflation that most private-sector economists say is running between 20% and 25%.
"The elimination and/or reduction of some of the subsidies will add pressure to the already challenging high inflation picture, but this is still a necessary step in the right direction for budgetary and economic reasons," Goldman Sachs economist Alberto Ramos said in a note.
Cheap utility services and public transportation are a key pillar of President Cristina Kirchner's economic program that favors high growth. Those subsidies have allowed consumers to spend more, while industry has benefited from low-cost gas and electricity.
Argentina's economy is expected to grow about 8% this year, after expanding at an average annual rate of 7.6% between 2003 and 2010.
"Subsidy policies have played a role in the success of Argentina's economic development in those years," Boudou said.
But government outlays on energy subsidies have exploded in recent years as a booming economy and capped natural gas and electricity rates have led to a surge in energy consumption.
ASAP, a non-governmental organization dedicated to improving public-sector finances, estimates energy subsidies totaled ARS19.2 billion in the first half of the year alone, or about 10% of total government spending. Those subsidies were ARS26.0 billion for all of 2010, and just ARS2.1 billion in 2005.
Natural gas price caps have discouraged investment in local production and forced the government to import growing volumes of much more expensive gas from Bolivia and Trinidad & Tobago even though Argentina is thought to hold some of the largest untapped reserves of shale gas in the Americas.
The supply situation has become so precarious that in the cold winter months the government rations gas to industrial users to make sure residential demand is met.
At the same time, energy imports have become a major drag on the trade surplus. Argentina swung to a trade deficit in energy and fuels of $3.0 billion in the January-through-September period, compared with a $1.1 billion surplus a year ago.
Argentina's Merval index of leading shares was recently trading 0.2% higher, led by gains in electric utility stocks. The peso was quoted trading on Argentina's MAE wholesale foreign exchange market at ARS4.2500 to the U.S. dollar, compared to ARS4.2380 at Tuesday's close.
