Listen to this article
Argentine president Mauricio Macri’s plans to reboot the economy suffered its first big blow on Thursday when the Supreme Court ordered a reversal of energy price increases that are a cornerstone of government attempts to close a yawning fiscal deficit.
Mr Macri has been applauded for his ambitious plans to reverse the Argentine economy out of the cul-de-sac it was driven into during 12 years of populist rule by former president Cristina Fernández and her husband Néstor Kirchner. That includes the removal of energy subsidies, first put in place over a decade ago, which now account for more than half of a fiscal deficit equivalent to 5 per cent of economic output.
In a unanimous ruling, the court ordered the government to reverse gas price increases for residential users until it carries out public hearings to discuss the tariff rises. The gas price increase “violated the right to participation by consumers in the form of public hearings in the revision of tariffs”, the court said in a statement.
The Argentine peso fell 1 per cent immediately after the ruling was released, while the share price of Argentine energy company Metrogras dropped 8 per cent and the yield on the sovereign’s 2026 dollar bond rose 8 basis points to 5.8 per cent.
Analysts said the ruling showed how narrow a path the government had to tread in order to push forward its reform agenda, especially in Congress, which is dominated by lawmakers from the opposition Peronist party.
“The court ruling is not a knockout blow for the [government’s] economic plan,” Luis Secco, an economist, said. But “it complicates the government’s strategy”. Mr Macri must now decide how he will fund the subsidies, either through budget cuts elsewhere, more bond issuance, or deficit financing using central bank money printing, Mr Secco added.
Although Mr Macri enjoys public approval ratings of over 50 per cent, the removal of gas subsidies on March 31 provoked public protests in July after an unusually cold winter quadrupled some energy bills. Mr Macri had appealed to Argentines to save energy by turning down their heating, but a recent photograph of the president at home watching television, alongside his wife who was barefoot and in shirt sleeves, provoked public ire.
Residential users account for 30 per cent of national gas consumption. Tariffs for industrial and company users, which account for 70 per cent of consumption, are unaffected by the court ruling.
Argentine residential gas prices remain far cheaper than in neighbouring countries. Even with the recent tariff rises, they cost about 7 per cent of comparable Brazilian or Chilean residential gas prices, according to a study by SEG Ingeniería, a consultancy. Last year, Argentina spent 170bn pesos on energy subsidies, more than it spent on education, health and culture combined.
Marco Peña, Mr Macri’s chief of staff, said public hearings would start in three weeks. Juan José Cruces, economics professor at Di Tella University, said energy prices would rise regardless. “The bottom line is that Argentina has a fiscal problem and the price of energy must be lined up with the costs of production . . . This is very difficult to do politically, but it must be done.”