Musketeers of redistribution: Ricardo Jaime

Continuing with the translation of the Crítica Digital article titled Los mosqueteros de la redistribución ("The Musketeers of Redistribution"), about the subsidies granted by the Kirchner administration.

The second musketeer of redistribution is the Secretary of Transport, Ricardo Jaime. During the first semester of the year, subsidies to transportation (urban buses, trains and subways) reached AR$2.66bn, up by 71% compared to the same period last year.

Néstor and Cristina Kirchner (for all practical purposes, it's all one open-ended presidential term) have channeled billions into subsidies for public and private companies, with almost complete freedom to alter the budget and without oversight, so these figures are important. They usually say they need freedom to redistribute the income collected by the state so that it reaches the poor, but in fact all that money and all that freedom gives a few people a huge amount of power. Unsurprisingly, they've been using it to benefit the companies.

Subsidizing public passenger transportation is not an Argentine invention. And there's a consensus that such subsidious mostly benefit the lower-income rung of society. However, here we have doubtful criteria for assignment of subsidies, [which are granted,] in the case of bus companies, on the basis of sworn statements without control over cost structures, and in the case of trains and subways, over cost structures that are inflated by companies linked [to the main ones] as suppliers.

If you've travelled by train in Buenos Aires, it should be obvious to you that the companies that provide the service aren't pouring money into it. I mean, people have set fire to train stations out of anger, due to how bad the services are. By giving money to private companies and not overseeing their investments or forcing them to give a reasonably good service, the government is an accomplice of fraud. If the Secretary of Transportation can't make sure that people aren't treated like cattle in buses and trains that he (using our money) is paying for, then he should resign.

Aerolíneas Argentinas is a completely different matter. The poor do not generally travel by plane. The decission of re-nationalizing is debatable, but valid if weight is conceded to arguments such as regional integration or economic development. What is not trivial from the point of view of redistribution is who will take on the cost. Jaime said that, if it were up to him, he would pay nothing to the Spaniards of [the Marsans group]. And he says they gutted the company, while he looked the other way for five years…

This is especially relevant now that Aerolíneas is being really nationalized. It certainly looks as if we'll be buying back a company laden with debt and with a dismal record of service, and we'll be taking care of fixing it.

There is not a successful precedent of redistribution, either, in the case of LAFSA, the state company that in 2003 took care of the employees of former companies LAPA and DINAR. LAFSA never flied and today it is in the process of dissolving itself. But in the budget there are still funds set aside to pay the salaries of 99 employees, about 10 of them with wages above AR$10,000 per month.

Empty shells masquerading as actual companies for accounting purposes are so common in Argentine history that this surprises no-one. "Enterprise ethics" is an oxymoron in Argentina. This case is also interesting because the state invokes the welfare of the workers to justify the intervention in the finances of failed companies. We're hearing this kind of thing in the debate about Aerolíneas Argentinas as well. At the risk of being accused of insensitivity, I think the state should decide whether it wants a serious company that works and can sustain itself as a flagship airline, or a mockery of an airline whose main purpose is to produce money for its workers, some of who have never done any actual work besides showing up at union meetings.

I'll be posting the last installment of this series in a few days.

Musketeers of redistribution: Julio De Vido

Long time no write, sorry. I resume the translation of the Crítica Digital article titled Los mosqueteros de la redistribución ("The Musketeers of Redistribution"), which shows how the Kirchner administration isn't Robin Hood taking from the rich to give to the poor, as they arrogantly assert all the time.

… [T]he residential natural gas fee in Buenos Aires amounts to 30 cents per cubic metre. However, four million low-income households which have no access to the natural gas supply network are forced to buy [pressurized natural gas] containers at a cost of AR$1.70/m³, that is, almost six times more. Since the devaluation [of the peso, in early 2002] the residential gas fees have been frozen; but the price of the 10-kg gas container has climbed 275%, to an average of AR$30…. [Minister of Federal Planning Julio] De Vido authorized the deregulation of the gas container market, in which [the private company] Repsol YPF is dominant, and in exchange offered the so-called "social container", which is impossible to find at the price of AR$18 suggested by the State. Even if you could get that, the price (AR$1.20/m³) would be four times that of the network gas….

That is, the government forces the natural gas companies to sell their product at ridiculously low prices to a mostly middle-class public (and gives those companies a good excuse not to invest on surveying and expanding their network to less privileged areas) and allows Repsol YPF to charge six times more to the poor who aren't reached by the network, or who can't pay for a connection to it. (Until a few years ago my neighbourhood itself wasn't connected to the NG network — when it was our turn, we had to pay something in the order of AR$700 to get the pipes into our home; the equivalent price today must be three or four times as much.)

With more concern for fiscal health… in the last weeks Cristina's government started giving signs that it will unfreeze the utility fees. The astronomical growth of subsidies would threaten the fiscal balance if tax revenue were to falter in the future. … During the first semester [of 2008] the energy subsidies alone amounted to AR$8.2 billion, 295% than the same period [in 2007]. The announcement of hikes in the power fees will be followed by the slow thawing of residential natural gas fees.

The interesting thing is that the increases follow a segmented criterion: more [percent] increase for those who consume more. According to data provided by the power distribution companies, 7% of the high-income households account for 25% of the consumption. In the case of natural gas the concentration is similar.

If progressive [as in gradual?] adjustments had been applied two or three years ago, the State would have avoided a huge transference of wealth to the pockets of the less needy. Why wasn't it done before? De Vido used to explain it was not easy to identify the bills of the higher-income households, something acknowledged as possible only now.

More about this coming soon...

Income redistribution?

An example of why I don't consider Cristina Kirchner's to be a progressive government, and why the Kirchnerist mantra about their income redistribution goal is a big lie, and why I think it's OK if the middle- and upper-class heavier consumers are charged more for utilities: an article on Crítica Digital, titled Los mosqueteros de la redistribución ("The Musketeers of Redistribution" — Minister of Federal Planning and Infrastucture Julio De Vido, Secretary of Transportation Ricardo Jaime, and Secretary of Domestic Commerce Guillermo Moreno). I translate freely:

"This year, one million families with incomes in excess of AR$6,000 per month will receive a state subsidy of AR$750/month in the form of cheap power, domestic natural gas and fuel. This is the equivalent of five social plans [welfare payments] of AR$150/month, which are still received by little less than one million household heads under the extreme poverty line."

The minimum wage has been recently raised to AR$1,200, from an earlier figure of AR$980 established in July 2007.

"We have already written about the sales boom of natural gas-powered heaters for swimming pools, of the rage in 1,000-watt searchlights for the gardens of the most exclusive closed neighbourhoods, or the growth of the market of high-end diesel cars. Since nothing is free in economics, these subsidized prices are paid by the state, which this year will give away nearly AR$20 billion to compensate energy companies."

For comparison, the federal state collected taxes for about 17 billion in March and 24 billion in July, so this is like giving away a whole month of taxpayers' money. You could argue the subsidies go to the taxpayers, only they're not the same taxpayers. Most of those billions come from the IVA (our VAT), which is 21% over most goods and services (including food), so the poor pay a disproportionate amount of it, because everybody needs food, and most of what the poor buy is food. A smaller amount comes from a profit tax that leaves ample room for evasion, and that the government doesn't even try to collect. In fact, the government is about to exempt individuals with monthly wages over AR$3,300 (single) or AR$4,500 (married with children) from the profit tax, detracting from the total collection.

The government actually benefits from the "inflation tax". Every month it proudly exhibits huge and increasing tax collection figures, which is easy when your main source of revenue is tied to the prices of consumer goods. Coupled with INDEC's low inflation rates pulled from Guillermo Moreno's ass, it lets them believe or pretend that the country is growing fast, although that plainly happens only in nominal terms.

"From the total subsidies to the energy sector, the generous Argentine State will provide this year AR$9bn to subsidize the consumption of that higher-income social group. Incredibly, there are still well-off middle-class people who complain that the State "gives away" Jefes de Hogar welfare plans, which today are received by extremely poor households mostly headed by women. The 2008 budget for the Unemployed Heads of Household programme is only AR$1.8 billion."

Yes, many in the middle class are really angry that the poor "don't work, don't pay taxes and get money from the government", while "decent hard-working citizens" have to struggle to go on vacations or change the car every few years. I've heard borderline middle-class citizens demand that the government "sends those lazy bums to work", disregarding the fact that most of them are single women with small children, or young men who have no qualifications at all. This is the state's fault, but taking away their welfare payments is not a viable remedy.

"So as to dispell all doubt regarding the magnitude of the redistribution exercised by [Julio De Vido's] Ministry of Federal Planning: the nine billion pesos devoted to subsidize the consumption of well-off citizens are well above this year's budget for the Ministry of Social Development (AR$7.6bn); they're on par with the annual budget of the Ministry of Education (AR$9.3bn); and they represent 2.5 times the budget of the Ministry of Health (AR$3.5bn)."

This was just the first part of the article devoted to the "Musketeers of Redistribution", who (as you see) wield huge power over the lives and fortunes of Argentinians, and who are accountable only to the office of the President. If and when I have the time, I'll translate another part.

Power fees going up in Buenos Aires

The national government is giving the power companies a raise, through an increase in the power fees, that will fall on those who consume more than 650 kWh every two months. The increase will range from 10% to about 30% and, while Minister Julio De Vido says it'll only affect 24% of the population, others claim the middle class will be hit hard. And it seems a further raise is due next February.

The above is the news as reported everywhere in Argentina, and many people are genuinely concerned or outraged for the wrong reasons. Why? Well, despite the big headlines and the alarming newsflashes broadcast by the media, the raise is only for Buenos Aires, its metropolitan area and the city of La Plata only. Granted, that's 40% of the consumer base and Buenos Aires is the center of the universe for the porteño and for the "national" media, but you'd think they should at least qualify their statements.

I didn't say we hinterlanders* shouldn't be concerned or outraged. We have reason to be concerned since the same inflation and the companies' lack of investments that prompted the national government to grant the raise for the Buenos Aires area utility companies is having serious effects on those that supply the provinces; many had adjusted their fees up or were considering raises before this, and now it's only a matter of time before they align themselves with the capital's companies. Our own EPE (the Santa Fe Provincial Power Company) is checking its numbers right now.

* "El interior del país" ("the interior of the country") is what they call everything but Buenos Aires. That's how Argentina was structured to begin with: a colony with a big port to interface with the world, plus a broad expanse of land ripe for primary exploitation. It's customary and it doesn't sound alright. In fact, it reminds me of the ridiculous conception of Bender's robot apartment in Futurama — Bender sleeps standing up in a 1×1-metre room with no furniture, and the place where he lets Fry live is a huge room in itself... which Bender calls "the closet".

The reason for the outrage is, partly, the outrage of the porteños at this raise, because they've been enjoying ridiculously low prices for power, natural gas and public transportation at our expense since... well, ever. Time and time again I've written about the subsidized fuel for buses. As Rosario's city council is about to take the bus ticket to AR$1.60, a bus or subway ticket in Buenos Aires still costs about AR$1.

Well, as it turns out, the average residential power fee in Buenos Aires is vastly lower than the average in the rest of the country. No wonder the system has problems — you can't expect that the power grid won't collapse when you charge the lowest fee in the place with the largest and densest population, the highest per-capita income, and the highest concentration of installed top-notch air conditioners and refrigerators. According to the article in Crítica Digital, in the capital area a home that consumes 1,700 kWh will get a bill for about 88 pesos. Checking EPE's website and doing a quick calculation, we learn that the same amount of power, in Santa Fe, will punish the wasteful ways of the unfortunate consumer with a bill for 194 pesos. (The guy who writes the Crítica article obviously has math issues. He reports that fees in Buenos Aires are "194% cheaper" than in Santa Fe. Things can't be more than 100% less anything, unless you allow for negative values. Back in 2002 journalists noted that the dollar-peso parity had gone from 1 to a rate of almost 4 pesos per dollar, and reported that the peso had therefore "devalued by 400%". I recall only one news source giving the correct figure of 75%.)

Why did the porteños get this lucky all this time? Well, first of all, no-one likes being charged more, and when you have a metropolitan area with 12 million people surrounding the government seat, you don't want to make them angry. Especially when outside the capital proper you have several huge concentric rings of increasingly impoverished areas. If you control the money, you can use it to favour those near you, while the rest of the country gets indebted. Second, if you measure inflation only in the metropolitan area, it's in your best interest (image-wise and in the short term, i.e. the Argentine way) to concentrate your anti-inflation tactics there and leave "the interior" to its own devices. When the system starts to buckle under pressure (because you subsidize the demand but do not force the companies to invest and increase the offer), you deny it for as long as you can. And then you do something. You can imagine how close to the brink we've come if you consider the government is taking this step now, after the president's image has plunged and with a cooling economy on the horizon.

So, porteños and platenses, welcome to the rest of the country. Don't complain; you're still getting lucky.

Be careful what you ask for

Some of the items that are not, repeat, not becoming more and more expensive every day.

(picture by johannrela)

Rounding up the economics news... Cristina K says she'll do the same as her husband, though undoubtedly she says it with many and much more sophisticated words... (That's more or less the official party line, if we're to trust those ads of the Rafael Bielsa campaign where the people didn't complain but only, happily, cried "More! More!".)

In the meantime, inflation in Kirchnerland was 0.7% in June. It was only 0.4% in No-Thinking-Men's-Land (Filmus dixit), double that in Santa Fe, and 6 times as much in Mendoza. I have to check the rest of the data, but I believe there's a definite correlation between the inflation rate of a given place and its distance to Economy Minister Miguel Peirano, quite possibly with fluctuations here and there due to the presence of Evil Neoliberals, unexpected polar airmasses, and political transvestites.

Now seriously, La Nación complains that the national government is trying to make things complicated for Macri. You know Buenos Aires has always lived off the national state. Telerman, since before his lame duck stage, and now Macri as well, have repeatedly demanded that the national state transfer the control of the part of the Federal Police that patrols Buenos Aires City to the City, something that was included in the conversion of Buenos Aires from a Federal District to an Autonomous City. Macri, in particular, wants the police to follow his orders, something quite understandable when you based your campaign on the issue of security (or rather, how to protect the middle and upper class from the lower class). The national government ignored the demand, until now. Now they want to talk about it, but it seems they only intend to give the police to Macri — not the money needed to pay for it. That's 900 million pesos, almost US$300 million, 10% of the city's budget. As Petinato would say, chan!

And that's not all. K's folks are also perfectly willing to let Macri control the subte (i.e. the underground, tube, métro), which is the preferred method of transportation for millions of porteños every day — safe, fast, environmentally clean, and extremely cheap. But don't hang on to that last adjective. The subte companies receive 250 million pesos a year in subsidies. National subsidies for a system supervised by the national government. Guess what will happen when the system is transferred to the city. Chan!

You're probably thinking I strayed off my usual territory, since this doesn't have anything to do with Rosario. Wrong! Do you know how much a passenger pays for a trip on the Buenos Aires subte? 70 cents! That's less than one-fourth the price of a cup of black coffee in any café in BA. Do you know how much a passenger pays for a (much slower, much dirtier, and usually shorter) trip on a bus in Rosario? 1.20 pesos. That's half the price of a cup of a coffee in most cafés here. And that's because the subsidies granted by the state to make gas oil cheaper for public transportation throughout the country, which were already very biased in favour of the capital and its metropolitan area, were decreased even more some months ago.

Now I don't have the tiniest bit of hope that the Kirchner administration will take funds from BA just to give them to us. But the funds should never have been granted to BA in the first place. The unsubsidized subte ticket will probably cost about AR$1.60, more than twice what it does now, but certainly not unpayable. I don't see the problem — that should be nice to Macri's associates and ideological supporters, who surely don't like such populist, leftist devices as subsidies, especially if they make it easier for the poor to move about cheaply in the city. And it should also be nice to the national government — with higher fees, the subte will be used less, thus saving energy (not that's there's in any way an energy crisis!) that the country needs to produce the value-added industrial goods that are fueling our economy, such as soybeans and sunflower seeds.

Alas, what Macri asked for, he will get. Is there not a lesson to learn from this?


PS: I've just added a link to an article in today's La Capital. The Santa Fe Province and the national Ombudsman offices are considering an accusation of discrimination against the national government due to the unequal distribution of the subsidies to public transport. The metropolitan area of Buenos Aires gets 86% of the country's total subsidies; Santa Fe gets 2.42%. Each bus that runs in BA gets between 9,000 and 12,000 pesos/month, while in Santa Fe they get about 3,000.

Rosario bus fee raised

I guess that's enough with Mendoza already... There are news over here too!

This is not exactly news, though it was unexpected. The municipality just raised the urban bus fee from 0.95 to 1.20 pesos; the 6-trip prepaid card rose from 5.40 (each trip for AR$0.90) to 6.90 (AR$1.15/trip); all in all it's over 25%, quite a brutal hack to one's pockets. The political cost is going to be high. The executive branch (mayor Miguel Lifschitz) asked the Socialist-dominated legislature of Rosario to grant it the power to raise the fee. The Deliberative Council complied at once, eager to shift the political cost to the mayor, who has kept a low profile and a high approval rate. Lifschitz conditioned the fee increase to the results of a study of the costs of public transportation, but it was obvious that the fee was going to go up regardless. The opposition was quick to point out that the delegation of legislative powers was done too fast, during the holiday season (everybody knows nobody pays attention to the news during the summer holidays!), and denounced a previous secret agreement between the mayor and the companies that own the bus line concessions (and that will participate in the re-designed public transportation scheme to be implemented a few months from now). Basic knowledge of realpolitik tells me this is probably true; the companies will not invest in a system that doesn't give them enough profit.

The root of the problem, however, is the combination of last year's huge salary raise for bus drivers (that was presented to the media as the resolution of a conflict between the drivers' union and the companies, but was rather clearly, except for the most naïve, a mis-en-scene to appease the drivers and to get the companies an argument to push for a fee increase) and the national parliament's preference for Buenos Aires City in the issue of subsidies to fuel for public transport — which is why bus tickets in Buenos Aires remain at around 80 cents while the big cities in the rest of the country (Córdoba, Mendoza, and now Rosario) have had to raise them to over AR$1.10, from previous values around 90 cents.

Buses in BA carry a lot of passengers from the impoverished metropolitan area, to be sure, but the cost of living in that area is considerably higher than that of the rest of the country (I'm told a cup of coffee can be around 4 pesos in BA — you can get a medium cup of coffee with milk plus two medialunas for less than 3 pesos in Rosario). Why is the bus fee kept artificially low in BA? BA has trains and a subway, and of course people there have many more cars and many more taxis available in proportion (BA has a taxi per 80 people — Rosario has about 1 per 350 people). Moreover, with a national government that constantly pressures private companies and interferes with the market to keep the prices of basic products depressed, what sense does it make to let public transportation become so expensive? An average worker in Rosario may now spend between 6 and 8% of his or her monthly salary just to get to and back from work.

I use the bus a lot (maybe 90 bus trips a month when I'm going to Japanese class); despite my willingness to exercise, I just can't go to work on foot or by bicycle; it's too far away and I can't possibly wake up even earlier than I do now. I can pay for the difference, but I shouldn't. My bike got out of repairs just yesterday and I think I'm going to start putting it to use...

Meanwhile, the transport officials of the municipality say the bus system is working fine and will be even better, the everyday bus users are complaining about the quality and frequency of the service, the taxi drivers want their own fee to be increased even more to compensate, and at least one person is attempting to block the fee increase by a judicial interdiction. The taxi owners are also complaining that they will have lots of work because the bus won't be advantageously cheap enough (what do you call a businessman who complains because his product has a large demand?).