Buenos Aires Weather | Reducing Argentina’s $11 billion energy bill is key to new IMF deal

Argentina’s deal with the International Monetary Fund has several unknowns, but one thing is clear: for it to succeed, the government will have to unravel a politically sensitive strategy of spending billions on energy subsidies.

Economy Minister Martín Guzmán said on Friday that he had reached an agreement with the IMF to gradually reduce the country’s budget deficit, with the Washington-based organization adding that cutting energy subsidies will be “key to improving the composition of public expenses”.

But cuts to grassroots grants, which proved politically damaging for former President Mauricio Macri when he attempted it late in the last decade, may be easier said than done. Argentina spent nearly US$11 billion on energy subsidies last year, according to Argentina’s General Mosconi Energy Institute.

“Utility prices would have to be much higher than what the government promised last year to really make a difference,” Daniel Kerner, managing director for Latin America at Eurasia Group, said on Friday. “Details on this will be key in assessing whether this understanding is sustainable.”

Argentina is preparing utility price increases for 2022 for households, with a cap of 17% for electricity prices and 20% for natural gas prices, depending on the income bracket of the household. ‘user. Annual inflation ended last year above 50%, meaning that the expected increases only cover part of the rise in consumer prices.

by Scott Squires and Jonathan Gilbert, Bloomberg

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