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Argentina backtracks from adjusting natural gas prices to inflation on October 10

On October 10 the Argentinian government decided to overturn a proposal to increase natural gas prices to retroactively adjust for the devaluation of the peso (ARG) throughout 2018. The measure was initially aimed at compensating gas distributors, whose operations are priced in USD. In order to mitigate social costs associated with surging energy prices, the government had requested distributors to afford consumers 24 installments to pay for the retroactive increase, starting in January 2019. Consumers would have then had to pay an average extra of 100 ARG (2.70 USD at the time of writing) per installment in addition to their monthly gas fees. According to reports, the government backtracked from implementing this decision as a result of surmounting political pressure from across the political spectrum, including center-left elements from within the governing coalition. Following this reversal, the government will reportedly compensate gas distributors directly for an estimated total of 20 billion ARG (roughly 545 million USD). Official sources indicate the government could potentially delay paying the total amount until 2021.

Had the decision to retroactively charge consumers carried, the government would have risked a great deal of political capital ahead of presidential elections in 2019. While the prospected increase per consumer was relatively low, it nevertheless added to mounting social grievances stemming from rising inflation and declining purchasing power. The opposition has since capitalized on the failed proposal to attract supporters and encourage demonstrations, portraying the retroactive increase in gas prices as an alleged token of President Mauricio Macri’s ill-advised policies. Bearing in mind that Buenos Aires witnessed large anti-government demonstrations between October 9-10, the decision to backtrack will likely bring short-term stability to the government by reducing the incentives for further demonstrations. That said, the intention to compensate gas distributors in installments underlines the ailing state of Argentina’s finances, subsequently undermining the government’s efforts to attract investors and foreign capital. Decisions to freeze energy prices in the country at the expense of gas distributors and enterprises are not unprecedented, suggesting that the energy sector will continue to face substantial losses amid the ongoing economic crisis.

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