Argentina Set for Second National Strike as Economic Woes Deepen

28/8/2014

By Charlie Devereux

Argentina is bracing for a day of road blocks and disruption as labor unions stage a second national strike in less than five months while July’s bond default threatens to fuel inflation and undermine growth.

Truckers, train conductors, port workers and waiters were set to walk off their jobs today in a 24-hour strike to demand higher wages and in protest at dismissals. Some state employees started protests yesterday, picketing the main entrances to Buenos Aires and marching through the center of the city.

“There’s a great desire to take part and show the government that people are fed up, tired and seeking answers to these demands that haven’t been met,” Hugo Moyano, secretary general of the General Workers Confederation and a former government ally, told reporters yesterday.

President Cristina Fernandez de Kirchner, who has defied a U.S. court order to pay $1.5 billion to holders of defaulted bonds, faces growing social discontent as the economy stumbles. Last month’s default threatens to speed the decline in central bank reserves, increase the fiscal deficit and widen the gap between the official and black market exchange rates, which could trigger a currency crisis, according to Bank of America Corp.

“It’s a reflection of worker discontent,” said Manuel Mora y Araujo, a Buenos Aires-based political analyst. “Prices are rising and wages aren’t.”

Falling Behind

Consumer prices rose 38 percent in mid-August from a year ago, according to Elypsis, a Buenos Aires-based research firm. The government hasn’t issued a figure for annual inflation since February, when it unveiled a new index. Registered salaries rose 29 percent in June from a year earlier, according to the state-run statistics agency.

The bus drivers’ union said it won’t strike today, which may lead other protesters to picket entrances to the capital for a second day, said Carlos Germano, a Buenos Aires-based political analyst.

“You’re going to have a relatively significant strike but I doubt you’ll see substantial changes in the government’s economic policy,” Germano said.

After initially saying it would postpone as many as seven soccer matches, the Argentine Football Association said those games would go ahead, though some might have to take place behind closed doors since stadium workers were also set to take part in the strike.

Kick Start

The government has sought to kick start the economy, which contracted 0.2 percent in the first quarter from a year ago. Spending rose 57 percent in June from a year earlier as the government raised salaries and energy subsidies.

Still, unemployment climbed to 7.5 percent in the second quarter from 7.2 percent in the same period last year. Gross domestic product is forecast to contract 1 percent this year, according to the median estimate of 22 analysts in a Bloomberg survey.

The government in January devalued the peso by 19 percent to 8 per dollar as it sought to boost competitiveness and shore up international reserves that have fallen to near an eight-year low of $28.6 billion.

On the illegal market, the peso weakened to a record 14.38 pesos per dollar yesterday.

Getting Worse

The economic situation has deteriorated since the previous strike on April 10, said Pablo Micheli, head of the opposition-aligned branch of the Confederation of Argentine Workers, or CTA.

The government “hasn’t sought any dialog to resolve the issues and the truth is the crisis doesn’t look like it’s going to subside,” Micheli said in a statement. “We don’t want this to fall on the shoulders of workers and the middle class.”

The strike is political and backed by “vulture funds” seeking to damage the government’s image, Cabinet Chief Jorge Capitanich said yesterday. Speculators are manipulating the peso’s plunge for profit, Capitanich said.

“The government’s strategy must be very clear to ensure the most powerful economic groups don’t attempt to generate increases in prices that affect salaries, economic activity or employment levels,” he said during a news conference.

Argentina defaulted July 30 when U.S. District Court Judge Thomas Griesa blocked a $539 million interest payment due on restructured bonds after Fernandez refused to comply with an order to also pay holdout creditors, whose bonds date to a 2001 crisis. Paying the holdouts, whom Fernandez calls “vultures,” would have triggered demands of as much as $120 billion, according to the government.

Default Impact

The default is delaying Argentina’s ability to access dollars as borrowing costs rise and legal restrictions increase. That will probably widen the fiscal deficit this year to about 3 percent of GDP, or $19 billion, according to Luciano Cohan, chief economist at Elypsis.

As the economy weakens and prices rise, tension has been mounting in Argentina since late 2013.

Rising prices triggered looting in several cities in December in which at least eight people died. The looters took advantage of strikes by police for higher wages. That prompted demands from other public sector workers, which may force the government to enter into a second round of wage negotiations this year, according to Bank of America.

Tensions probably will mount further as Argentina enters the hot summer months later this year, Germano said.

“What you’re going to find is a lot of social conflict, especially in December,” he said.

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