2024-03-21 05:00:54
Argentina’s libertarian president Javier Milei has launched an aggressive campaign to overhaul state-owned companies from an airline to an oil group and the postal service as lawmakers hold back his plans to privatise them.
Milei, who counts Margaret Thatcher among his political heroes, on the campaign trail described privatising Argentina’s state companies as a top priority, but he has so far struggled to win backing for it from Congress.
In the meantime, his officials have begun large-scale cost cuts at dozens of state-owned groups as part of their effort to balance Argentina’s budget this year, opening up fierce conflicts with staff and unions.
“All of these companies . . . spend 20 per cent of their budgets on delivering their specific goals, and 80 per cent on management costs,” Guillermo Francos, Milei’s interior minister, told Argentine television network LN+ last month. “We must strive for efficiency.”
ASAP, a local NGO tracking government finances, found Milei had cut transfers to state companies to 456bn pesos, or $535mn at the official exchange rate, in February — a 61 per cent decline in inflation-adjusted terms from the same month in 2023.
The roughly 40 state-owned companies provide public services, including passenger rail, sewerage and energy. Most operated at a loss under previous governments. Now Milei’s administration has appointed new management at many of them, with a mandate to slash staff numbers and revamp their strategies.
Juan Cruz Díaz, managing director of the Cefeidas political consultancy, said: “There’s a lot of space to cut costs, make things more efficient, improve management [in Argentina’s state companies]. But the government has an ambition to move much more intensely. This is a question of principles as much as costs.”
One of the most prominent companies in Milei’s sights is Aerolíneas Argentinas, the airline renationalised in 2008, which controls about 60 per cent of Argentina’s domestic market and is the sole airline serving some less profitable routes.
In an emergency decree published in December, Milei enabled the state to hand over Aerolíneas’s shares to its employees. The decree, rejected last week by the senate, remains in force unless the lower house also rejects it.
Over the past three months, Aerolíneas’s new Milei-appointed leadership has opened a voluntary retirement programme for 8,000 of its 12,000 staff; cancelled a route from Buenos Aires to Havana that it said was losing $500,000 a year; and banned officials from earning air miles for personal travel from government-funded flights, which it says will save $2.8mn a year.
Milei’s administration has also offered pay rises to the airline’s staff far below Argentina’s runaway inflation, putting government on a crash course with powerful unions.
In late February air travel unions held a 24-hour strike after economy minister Luis Caputo offered a 12 per cent wage increase. Rodrigo Borrás, secretary of ground crew union APA, said a 70 per cent rise was owed.
“They are refusing to negotiate seriously because they want to create an atmosphere of crisis for staff and passengers [that will] justify their plan to hand over the state’s profitable businesses to private hands,” Borrás said. Caputo’s office did not respond to a request for comment.
Aerolíneas has historically received hundreds of millions of dollars’ worth of taxpayer funds a year, but had reduced its losses in recent years.
Other state-owned groups are also facing drastic changes under Milei, who describes himself as an “anarcho-capitalist” and has pledged to take a chainsaw to the state.
Official data shows that in the first nine months of 2023, the companies — excluding energy group YPF and several financial entities — ran at a collective loss of 1.13tn pesos, or $1.3bn.
In early March, authorities shut the offices of state news agency Telám, which Milei has accused of left-wing bias, suspending its 700 employees as they seek a legal route to permanently close the outlet. They said it was on track to lose roughly 20bn pesos ($23.4mn) this year.
A few days later, 200 workers were laid off at Aysa, the sanitation provider for Greater Buenos Aires. Officials privately warn of hundreds more dismissals at state companies this month.
Under Milei-appointed management, energy group YPF, in which Argentina’s state holds a 51 per cent stake, has increased prices, previously held far below global market rates, by almost 180 per cent since November. The New York-listed group, which has a market capitalisation of almost $9.5bn, has announced plans to divest from mature oil and gasfields to prioritise more profitable shale assets in Patagonia.
The changes to state-owned companies still fall short of Milei’s ambitions: he said while campaigning that “anything that can be in the hands of the private sector will be”.
However, selling off state-owned companies requires approval from Congress, where Milei holds less than 15 per cent of seats. An initial effort to win a broad green light for privatisations failed in January. Last week Milei unveiled a less ambitious proposal to fully or partially privatise a dozen companies.
Argentina went through a larger round of privatisations in the 1990s, when right-wing president Carlos Menem sold off, dissolved or granted concessions for more than 60 state-run businesses. A handful of companies returned to state hands in the 2000s under left-wing presidents Néstor and Cristina Fernández de Kirchner.
José Barbero, an infrastructure consultant and lecturer at the Universidad Nacional de San Martín, said Milei would first need to tackle “serious problems of inefficiency and low productivity” if he wants to sell off state-run businesses.
Argentina’s passenger train operator, for example, “transports half as many people as the equivalent firm in São Paulo but with twice as many staff”, he added.
But Barbero noted that public services such as passenger rail and sanitation, both of which Milei hopes to hand to the private sector using a concession model, would probably not be viable businesses without large subsidies — an instrument Milei has repeatedly scorned.
“I think the government still needs to examine what makes sense and what doesn’t,” Barbero said. “They didn’t do that analysis before taking office.”
Milei has said that YPF, in which Argentina expropriated 51 per cent of shares in 2012, would need to be “rebuilt” before he would sell state shares, which are worth roughly half of what they were in 2011.
Horacio Marín, the oil industry executive Milei appointed chief executive of YPF, said on an investor call that his plan to divest from less profitable sectors, improve efficiency and invest in liquid natural gas export infrastructure would “multiply the value of the company in the next four years”.
But Daniel Dreizzen, director of energy consultancy Aleph Energy, said previous YPF leaders had attempted similar reforms and met fierce resistance inside the company and among provincial governments.
“It’s possible the [direction of travel] Milei has set for the company will give Marín the leverage he needs to finally overcome that resistance,” he said. “But a lot will depend on his ability to manage the political and economic conditions, just like it will for Milei. YPF is like a mini-Argentina.”
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