On 9 March, former President Cristina Kirchner attacked how President Mauricio Macri’s administration has managed the energy sector, specifically its tariff adjustment policies. In a series of posts on social media, she set forth a litany of energy statistics (largely derived from a report by think tank OETEC) that she said underscored the energy crisis that the Macri administration’s energy agenda had created. Specifically, she emphasized that the levels of energy imports had increased in the two years since Macri and his Cambiemos coalition were elected.
The discourse was not entirely new. During the midterm election campaign last year, Kirchner made similar arguments against the broader economic reform agenda and structural adjustments being undertaken by the Macri administration. What distinguishes the latest wave of attacks, however, is that she is now wielding credible data on the energy sector that is unfavorable for the Macri administration. Furthermore, the backdrop of union unrest and increasingly vitriolic public demonstrations in Buenos Aires – due largely to segments of the population feeling marginalized by the Macri administration’s reforms – complicates the situation, presenting a larger audience receptive to these charges.
The Macri energy reform agenda was always going to be a balancing act between enacting much-needed market adjustments (especially reducing subsidies) without causing deep social divisions and unrest. The government chose to progressively eliminate subsidies and eventually liberalize the market. What does not often get noted is that the Macri administration has coupled these major adjustments with targeted subsidies (the so-called “tarifa social” or social rate) to protect the poorer segments of society. Additionally, in response to the long-running level of energy overconsumption (inherited from the Kirchner era), the tariff adjustment plan allows consumers to save money by boosting energy efficiency and reducing their consumption.
Despite some of the fairly ominous statistics being bandied about by Kirchner, we believe that the measures thus far implemented by the Macri government to normalize the energy sector and address the sizable market distortions are beginning to show results. For example, with regards to natural gas, the gap between the prices paid by consumers and the price received by producers is closing. Crucially, this reduction is shrinking the government’s fiscal deficit and freeing up funds to subsidize poorer consumers. In addition, more market-based prices have led to an overall increase in the country’s upstream natural gas production since 2015. The electricity sector has seen similar results; the gap between the price paid by consumers and the price received by generators has started to close, greatly alleviating the fiscal burden wrought by subsidies.
It is troubling that imports still significantly outweigh domestic energy production, although this ratio will likely change in the coming years as new investments are made and projects advance to commercial production. There is a larger concern, though. In our assessment, despite the many positive signals surrounding the energy market, including public tenders and institutions with enhanced transparency and long-term policies, the question of the reforms’ longevity persists. Given Argentina’s history of boom-bust economic cycles and major political changes, there are concerns over post-Macri political interference in the market, even reverting back to a heavily subsidized system.
There is an important point to note in this regard: the Macri government chose not to extend the economic emergency law it implemented in December 2015. Removing this mechanism for possible market intervention by the government undergirds the transition to a fully liberalized market. Moreover, the law’s removal makes a major policy reversal less likely. In order to re-impose large levels of subsidies, a new government would have to pursue such changes legislatively, thereby requiring a majority in Congress.
Nevertheless, this long-term policy uncertainty is what makes Kirchner’s accusations so relevant. Though her brand is surely damaged, she is still a senator from Buenos Aires province and commands the loyalty of an important segment of the population. She also counts 5.4mn followers on Twitter, all of whom received her most recent barbs aimed at Macri on energy.