Sergio Massa is gathering power as Argentina’s economy minister. After a week in office, he has finally managed to seize control of the Energy Secretariat, which until now has been in the hands of Kirchnerism. This is a key area: it is where most of the dollars that fatten up the budget deficit and drain central bank reserves come from. In the first five months of the year, subsidies paid by the state to keep households’ electricity and gas bills in check increased by 130% compared to the same period last year; Energy purchases abroad, on the other hand, cost the state $4,641 million. Massa now has a free hand to apply for a gradual reduction of this state aid. The method chosen was segmentation by income, with rich households paying the full tariff for the energy they use.
The segmentation was not invented by Massa, but by Martín Guzmán, the economy minister who resigned on July 2nd. Guzmán clashed with the refusal of the Minister of Energy, who, on the orders of Vice President Cristina Fernández de Kirchner, obstructed the application of the system as much as possible. Defeated and without the support of President Alberto Fernández, Guzmán left office. His departure triggered a tsunami in Argentina’s struggling economy. Inflation jumped to 7% a month, the peso lost 40% of its value against the dollar in the informal market, and pressure on the central bank accelerated. After a failed attempt with Silvina Batakis as minister, Alberto Fernández and Cristina Kirchner resignedly opened the door to the leader of the third leg of the coalition, MP Sergio Massa.
Massa came into government with the powers of a superminister. The economy absorbed agriculture and manufacturing, but energy remained, the portfolio in his hands to shut off the faucet of the outflow of dollars. During the last nine rounds, the central bank held $1,100 million, mostly to meet demand for energy and fuel imports. Kirchnerism took note of the seriousness of the crisis and relied on pragmatism. That Monday he finally relented, his officials handed in their resignations and Massa was able to name his people. The head of the secretariat will be Flavia Royón, who held the same position in the province of Salta. Royón is responding to Governor Gustavo Sáenz, an ally of Massa in the structure of the Front Renovador, the new ministerial party within the ruling Frente de Todos coalition.
The new energy minister received the support of Cristina Kirchner, who silenced her criticism of President Fernández and his government just before Argentina fell into the abyss. The South American country is now witnessing a truce in the struggle that has resulted in wasting what little political capital President Fernández had left. The power axis now runs through the Kirchner-Massa binomial. Both have agreed to a Pax motivated by the need to channelize the economy and give Peronism some chance of victory in the 2023 general election, albeit at a very close distance.
Last Wednesday, the new economy minister was dismissed with a package of measures in line with adjustments that the International Monetary Fund is asking Argentina to do. The axis of the plan is to preserve the peso, build up reserves and drastically reduce public spending. “We will reach the target of 2.5% of the budget deficit [acordada con el FMI y que figura actualmente en el presupuesto]said Massa. To do this, it must first reduce energy subsidies, which implies an increase in household tariffs. The government had already introduced a system of income segmentation that withdrew aid from wealthy families. Massa has now added a regulation whereby those who consume the most also pay more: Anyone who exceeds 400 kilowatts loses the advantage, regardless of their income level. The adjustment is even tougher than the one that left Guzmán, a victim of Kirchnerism’s friendly fire, out of office. It’s that bad in Argentina.
The new energy minister, Flavia Royón, will have to clarify a number of fundamental issues. For example, users don’t know if the 400-kilowatt cap is monthly or bi-monthly, which is the frequency with which electricity bills reach households. As for gas, there is currently no precision. In any case, Massa has the permission of Cristina Kirchner to push the adjustment, which she so strongly opposed, to the point that her representatives in Congress voted against the deal with the IMF. The former president’s turnaround should come as no surprise. The tacit departure of Kirchner officials allows Massa to amass power but also condemns him to shouldering the political cost of failure.