Rising Inflation in Argentina Complicates Wage Talks

As a crucial electoral year for the country progresses, wage negotiations – including in the oil and gas sector – have gotten off to a rocky start over rising inflation. On 30 April, some of Argentina’s powerful labor unions staged their fifth general strike against President Mauricio Macri’s economic policies. The strike is led by Hugo Moyano, who heads the powerful teamsters’ union. He has gathered the support of a group of unions including bank clerks, subway workers, and a faction of government workers and teachers, as well as picket organizations that claim to represent the unemployed.

However, Moyano failed to rally the largest unions in the General Labor Confederation (CGT), the country’s main union umbrella group. Likewise, the oil and gas workers declined to join the strike. This is good news for the Macri administration, which needs the unions to stay divided in order to contain labor tension in the run-up to the October presidential elections. Recently appointed Labor Secretary Lucas Fernandez Aparicio leads the government’s efforts on this front.

Macri’s team also needs to strike a balance in the annual sector-by-sector wage negotiations that are just beginning. The unexpectedly high inflation of 4.7% in March is putting pressure on the talks, as the unions do not want to sign anything that would quickly become outdated. Inflation in April is also widely seen as above 4%.

In the case of the oil and gas sector, the unions are demanding an extra increase to compensate for the purchasing power that they lost last year. By November 2018, the workers had obtained a 40% increase in three installments, but by the time the annual agreement expired in March 2019, inflation over the past 12 months had reached 51.3%.

Initial sectorial talks broke down on 24 April, with the unions threatening to strike on 29 April. This prompted the Labor Secretariat to intervene; it ordered mandatory conciliation, a legal tool that makes striking illegal for 10 days while negotiations continue. The talks include union leaders from the provinces that house Vaca Muerta (Neuquen, Rio Negro and Mendoza), as well as Chubut and Santa Cruz to the south in Patagonia.

The Neuquen union led by Senator Guillermo Pereyra is the most moderate of the three groups, but tension in the province has also been growing in the last few months over safety concerns in the wells. In Chubut, the union led by Jorge Avila also complied with the mandatory conciliation but warned that protests would resume unless an agreement is reached soon. In Santa Cruz, however, the local union went on strike on 24 April; its leader, Claudio Vidal, led a rally to put pressure on both the authorities and companies. According to media reports, Vidal is also hoping to launch a political career in the province this year, siding with Governor Alicia Kirchner. The latter is the sister-in-law of former President Cristina Kirchner, who will be seeking re-election in October.

The wage talks were scheduled to resume on 29 April but were postponed until 3 May, given that the general strike grounded flights and the union negotiators could not secure transportation to Buenos Aires. The unions want to secure an additional 12% compensation for 2018 before moving forward with this year’s talks. In our view, the difficulties in conducting this year’s wage talks in the oil and gas sector are largely the result of uncertainty over the pace and extent of the country’s rising inflation. To a lesser degree, they are also due to sectorial activity having flattened after the government announced caps on subsidies for shale oil development.

Nonetheless, a wage agreement in the oil sector will most likely be struck in the near term, for two main reasons. First, even though the government lacks the fiscal margin to offer further incentives, it will exert strong political pressure to secure a deal, and energy is one of the few sectors where Macri’s embattled economic performance can show good results. Second, despite their leaders having different agendas, the unions benefit from comparatively robust employment and understand that a long conflict would also be harmful for them.