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Argentina chips away at utility subsidies
by Staff Writers
Buenos Aires (UPI) Nov 17, 2011

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Argentine businesses and wealthy families face new cutbacks in subsidies as re-elected President Cristina Fernandez uses her new mandate to implement austerity-driven reforms in the country.

Some of the subsidies were seen by analysts as sweeteners and part of the president's overall re-election strategy, no longer needed. Fernandez, who took office in 2007, won a second term in a general election last month.

This week the government announced more cuts in subsidies for electricity, gas and water, casting the net wider to take away from large companies and high-income households privileges that allowed them to pay far less than the market rates.

The move away from subsidies was announced by Vice President-elect Amado Boudou and Planning and Public Works Minister Julio Miguel de Vido. Both have been in the forefront of a vigorous government drive to encourage austerity in both business spending and consumer lifestyles to reduce the drain on national earnings from commodities and other exports.

Before the cuts, subsidies totaled $16 billion, about 6 percent of Argentina's gross domestic product.

Officials said the subsidy cuts announced this week and earlier could save Argentina about $1.1 billion.

Business reaction to the cuts so far has been muted.

The austerity program's successful implementation is also important to Fernandez and her ambitious aides, who see the program's success as a test of their persuasive power, political prowess and resilience in the face of political opposition. De Vido is widely tipped to become the next chief of Cabinet when the president inaugurates her new government Dec. 10.

"The subsidy cuts will extend to the highest grossing companies in the fuel sector, natural gas production, bio-fuels, oil and agricultural chemicals," Boudou said. He said the subsidy cuts in the four sectors would make a substantial saving for the government.

In addition, the government's withdrawal of subsidies for families and households it considers wealthy offers further savings of about $120 million.

Neither the government nor its critics have weighed the overall costs of the cutbacks for those well-off families, many of whom are seen as part of Argentina's political elite. Analysts said Fernandez felt emboldened to extend the subsidy cuts to those privileged classes mainly because of her clear victory in the first round of last month's presidential elections.

About 232,000 high-income households are likely to be affected by the measure.

The government insists its cuts will not affect the economy adversely. It argues small and medium-sized companies, seen to be contributing most to job creation in the Argentine economy, are unaffected by the measures and therefore will continue to perform as before. No independent assessment of the subsidy cuts' real impact has yet been made.

In previous subsidy cuts announced in early November, the government targeted airports, casinos, financial groups, hydrocarbon and mining companies, mobile phone companies and ports.

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