Transport subsidies to pose a dilemma for Argentina’s next president

Rolling back Argentina’s transport subsidies could backfire on the country’s next president as the public is used to paying low fares. 

During Sunday’s presidential election debate, the last before the November 19 runoff, libertarian candidate Javier Milei said he “wouldn’t touch” the many subsidies currently paid by the federal government but added that his aim was for “the economy to recover, and once the economy recovers [users] will be able to pay those fares [without subsidies]”.

Milei’s rival in the runoff, economy minister Sergio Massa, accused him of lying, recalling an earlier interview in which the libertarian economist said he would ax subsidies if elected.

Argentina spent around 85bn pesos (US$243mnn at the official rate) on transport subsidies in September, which cover train and bus fares as well as gasoline prices, Hernán Letcher, head of local economics think tank CEPA, told BNamericas.

The transport ministry launched a mechanism last month in which users can opt out of the subsidy for public transport fares through a sworn declaration. 

As of last week, however, only 1,500 users, out of an estimated 18mn who regularly use the public transport system, had completed the procedure.

Massa claimed the measure was meant to “expose” what would happen if the subsides were removed, but he has also been accused of not supporting the subsidies outside Buenos Aires, where fares are higher as a result. 

The minister also faces pressure from the IMF to cut public spending as the country is negotiating the terms of a US$44bn loan signed during the previous Mauricio Macri presidency. 

According to a study released by CEPA, lifting the subsidies on Buenos Aires bus fares would result in a 1,150% price increase, while for trains the rise would be over 2,000%.

For example, if a five-person household in the capital’s metropolitan area (AMBA) with two working members currently spends on average 4,928 pesos (US$14) a month on bus fares, removing the subsidy would increase that to 71,600 pesos. 

In neighboring Chile a 2 US cent increase in bus and metro fares triggered widespread protests that kickstarted the process of drafting a new constitution.

“Argentina would go up in flames if fares increase in that way,” according to Letcher, who added that Argentines are used to paying low fares for public transport. 

In the case of gasoline, axing the subsidy for 95 octane fuel (known locally as Nafta Súper) would spark monthly increases for the same family group from US$175 to US$467, assuming they only use the car to go to and from work. 

Argentine consumers are already reeling from high inflation, which as of September reached an annual rate of 138%, and the issue has been a central topic in the run-up to this Sunday’s presidential vote. 

Milei has vowed to abolish the central bank and dollarize the economy to counter rising prices, while Massa proposes to gradually lift restrictions on currency markets and boost exports.

The new president to replace Alberto Fernández takes office December 10.