Inflation erodes the purchasing power of most wages. Salaries are getting less and less. However, the income of Argentines has one peculiarity. “If you take a salary from here and measure it in terms of utility rates, or how much is paid per average electricity bill, the salary in Argentina is very high”, relaunches the economist Nicholas Gadanoenergy specialist. “But if we take the same salary in slippersit is probably the worst in the world,” charts a graph.
The point on which Gadano points is the call “relative price bias”: Electricity and gas tariffs, especially in Buenos Aires and the suburbs, are very low compared to other goods and services, such as a pair of shoes. “Let’s calculate the cost of the shoe compared to the average energy bill, compared to Spain,” he proposes.
A minimum salary in Argentina is $80,000. At a well-known sportswear chain, that amount buys two pairs of designer sneakers. Instead, with that $80,000 you can pay your electricity and gas bills almost all year round in Buenos Aires. In Spain, a minimum salary is 1,050 euros. The shoes cost 70 euros. And electricity and gas bills between 100 and 150 euros for a studio flat, depending on consumption. “When the purchasing power of the salary is very high in public services, but very low in slippers, it is evident there is a distortion”, he expresses “We cannot naturalize that a monthly bill for an energy service is worth less than going shopping one day”, draws a graph.
Gadano – who was an official of Alianza Economy, and of Central Bank and Economy in the Cambiemos administration – collaborates with the think foundation in outlining an economic plan for the next government, in the event that Together for Change prevails in the presidential elections. He admits that the tariff correction of 2015-2019 (the previous Cambiemos government), had errors. “There was a lack of coordination. The Central Bank goes aside with its objectives (to lower inflation), the Treasury and the Ministry of Finance with theirs and the Ministry of Energy, with its policy of normalizing prices and tariffs”, he summarizes.
“There was noise, among those things, because subsidies are an economics issue, but inflation is a central bank issue. It is very difficult having to raise some prices while you cannot be ambitious in lowering others. This is learning. Now everything has to be designed so much more coherent and completel”, he explains in an interview with clarion.
– How would you describe the current energy situation?
– It’s interesting to see it from a double perspective. On the one hand, it’s a huge challenge because we live with a huge distortion in relative energy prices. The average price of energy in general is low. It is low that demand pays and that has its correlate Tax subsidies and corporate decapitalization, but also relative prices within the energy system, across different fuels, across different users, across different regions of the country, are also a disaster. It generates very distorted behaviors.
– What does it involve?
– If people believe that energy is cheap because they see that year after year the price of energy is low, they will make decisions about consumption, housing equipment, where they don’t care whether they will have to divide the consumption or take care of it. So put air conditioning and you see it in corporate buildings too. Conversely, if in a few months and very rarely, the price of energy goes up, people don’t make long-term decisions. When you try to get prices right, people are already equipped to spend more.
– Is it possible to interrupt that dynamic?
– This Kirchner government, unlike the previous one, has changed the subject. He acknowledges that the subsidy policy is irresponsible. And with a scheme that is quite complex and probably not the one I would have chosen – segmentation – the rates begin to rise. For tier 1 (high-income sectors, or those who want to continue saving in dollars), rate hikes are 200%, 200 and a few percentage points, well above inflation. There is obviously so much damage that has been done that it is insufficient, but It seems to me that society already understands.
– Does what you understand mean you are willing to pay higher rates?
– No one is going to like it when the prices of something go up. But she realizes that it is not an opposition speech. The government itself is explaining that the way of lowering the rates is a hoax and that this is paid for with subsidies, i.e. for the fiscal deficit, taxes, inflation that we all pay or because of what happened in the distribution in the summer, which is the lack of ability to have energy. Everyone realizes that it is better to pay a little more for energy, but have energy.
– With shock or gradualism?
– The corrections must be the first day. The energy issue must be fully integrated with the economic program, due to the tax issue and subsidies. It is very important that the times are closely linked throughout the process. There is no fiscal leeway to make the issuance of subsidies gradual or less gradual.
– Can’t you make the corrections little by little?
– Let’s suppose that Argentina had the money -even if it doesn’t have it- to make corrections little by little, in one or two years. Well, that means that recurringly over a two-year period, we would have inflation spasms. From the point of view of inflationary policy, this is not good, because every time we have a movement in rates we will have a disturbance that could jeopardize the objective of lowering inflation. Then you have to apply the normalization program from day one. That doesn’t mean all day 1 is done. The sequence will depend a lot on your overall macro stabilization program.
– Don’t you think that most families prefer to be subsidized, and do you understand that if the State pays it, they have fewer expenses in their pocket?
– It is a problem of the public question and goes to the heart of the problem of Argentine instability, which is the recurring, systematic, structural fiscal deficit and the financing methods that have destroyed public credit, currency, access to markets, international credit We have abused all the mechanisms with which a country finances its public deficit, and we have not been able to correct it because we are always in deficit. You have to explain to people that this is very harmful and very costly.
– The previous corrections were accompanied by many protests from Kirchnerism and sections of the middle class. Why shouldn’t it happen again now?
– This government has already had to explain to the people that what Kirchner did in the first stage, what he did in the first two years of this same government is not right. Transfer money to higher income sectors. It was former Economy Minister Martin Guzmán, of this government, who said that the subsidies were in favor of the rich. It’s one thing to focus, which we all agree on. The social rate is something that is fine. Now you can’t power every house in Argentina.
– But do you think that people take into account the problem of the public deficit or is it extraneous to them?
– There’s the idea of ’ah, well, if I don’t pay it, the state will pay it. And if the state pays, nobody pays.’ But in truth we all pay, with an unstable economy that hurts us all. In short, the energy rate can be controlled, but food and greengrocers cannot be controlled. Price controls are a hoax that doesn’t work, everything ends up being more expensive. Energy is very important, but it does not weigh so much in a consumer’s consumption basket. Food weighs much more and rent weighs much more.
Bright side
The opportunity. Just as he sees the outlook for utilities bleak, Gadano sees potential in hydrocarbons, renewable energy and lithium. “There are enormous opportunities for growth, investment, exports and employment throughout the country. Before, out there, he was very focused on the hydrocarbons of Vaca Muerta. Today there are many provinces with energy projects. Plus offshore, which is very interesting, which opens up a new oil world”.
In Vaca Muerta notes that there is a maturation of the “investment and improvement process in terms of cost and competitiveness”. “You can see it in YPF, but also what Tecpetrol has done in gas, the more Shell is doing, the Vista boom. It is a portfolio of companies of different formats that have made Vaca Muerta, even in a favorable international price context, a reality, a boom, despite the Argentine economic context, totally opposed to development ”, he defines.
He also says stockpiles are hampering further development. “I was at a seminar and the governor of Neuquén (Omar Gutiérrez) said ‘be careful, they can’t enter imported equipment’. It’s no longer that they can’t make a profit or can’t borrow.
“Likewise, private industry is investing today in capacity expansion. The Ministry of Energy was right on an issue of pipeline export permits. The industry expects it will produce much more and is investing to expand capacity to reach the Atlantic and Pacific. There is the Trans-Andean pipeline, the Oldelval expansion, the Vaca Muerta Sur pipeline,” he enthuses.
Source: Clarin
