Economy

Will pension cuts hit Alberto Fernández’s popularity?

20th February 2020

By Ignacio Portes

Will pension cuts hit Alberto Fernández’s popularity?

An old trick from seasoned politicians when they want to avoid raising too much attention to an unflattering piece of news is to announce them very late on a Friday, knowing that both journalists and readers will be more focused on their weekends.

And although President Alberto Fernández presented the announcement of a new pension formula last Friday as great news for retirees, for many it will feel like just the opposite is truth.

</p> <p>As <a href="https://gettheessential.com/economy/2019/12/26/alberto-fernandez-pension-reform-flattening-the-pyramid">anticipated</a> by <em>The Essential</em>, the formula announced confirmed a crucial aspect of the reform: the “flattening of the pyramid”, with the lowest pensions gaining some purchasing power and those at the highest echelons losing significantly when their new monthly payment is adjusted for inflation.</p> <img class="wp-image-7913 aligncenter" src="https://gettheessential.com/wp-content/uploads/2020/02/troccoli.png" alt="A comparison of pension payments with the old and new formulas" width="566" height="471" srcset="https://gettheessential.com/wp-content/uploads/2020/02/troccoli.png 938w, https://gettheessential.com/wp-content/uploads/2020/02/troccoli-300x250.png 300w, https://gettheessential.com/wp-content/uploads/2020/02/troccoli-768x639.png 768w, https://gettheessential.com/wp-content/uploads/2020/02/troccoli-600x500.png 600w" sizes="(max-width: 566px) 100vw, 566px" /> <p>As the chart shows, only the lowest earners will see an improvement in their pensions when compared to what they would have received if the formula approved in 2017 by Mauricio Macri’s administration would have stayed in place. For the rest, losses of up to 7 percent will be taking place in the March-May period in which the new provisional formula will be applied. The final formula for pensions will be confirmed during the second half of the year, after the end of the debt renegotiation process, but it is likely to follow the same principles as the current one.</p> <h2>What to expect</h2> <p>So will this new formula be seen as attack on pensioners and a betrayal of campaign promises? Some will likely view it that way, but the discontent might only reach a minority.</p> <p>Although most categories will end up losing, more than half of Argentina’s pensioners are part of the lowest category seen in the chart. That group will see a 1.3 percent improvement (plus an additional bonus paid by the Fernández administration last December, which could take that figure to eight percent if included in the calculations), which is a stark contrast to the <a href="https://centrocepa.com.ar/informes/244-el-impacto-del-aumento-de-las-jubilaciones-en-marzo-de-2020.html">over 20 percent of purchasing power lost</a> by minimum pensioners during Macri’s administration.</p> <p>In its press release announcing the new pension structure, the ANSES social security agency emphasized that “75 percent of pensioners will receive hikes equal to or higher than the 11.56 percent that they would have obtained under the previous formula.” The new formula will also be used to update the sums paid to beneficiaries of key social security programs such as the Universal Child Benefit (AUH), meaning that overall 13.5 million people (one third of the country) will see their social security benefits stable or increased.</p> <p>This means that Fernández’s Peronist base will be safeguarded from any cuts. But the whole point of picking a Buenos Aires city university teacher like Fernández as the presidential candidate was to reach beyond the working-class and appealing to the middle-classes as well, and this is where the reform might bring some trouble. Fernández has been making a conscious effort to gain supporters there, or at least turning former enemies of the Kirchners into neutrals. And the history of protests against pension cuts to the middle classes is not insignificant in Argentina.</p> <h2><strong>A history of cuts to the middle class</strong></h2> <p>Back in <strong>2001</strong>, however, Peronism was on the other side on the fence, leading the protests instead of combing through the budget. Patricia Bullrich, one of the current leaders of the opposition coalition <em>Cambiemos</em>, was the Labor minister announcing a 13 cut to all pensions above a threshold of 500 pesos (equal to 500 dollars at the time, and roughly comparable to 30,000 pesos of today), in an attempt to reduce the country’s deficit spending to keep getting assistance from the International Monetary Fund (IMF).</p> <p>At the time, Bullrich was a member of another anti-Peronist coalition known as <em><a href="https://gettheessential.com/politics/2019/07/18/mauricio-macri-fernando-de-la-rua-structural-reforms-imf-financial-crisis-argentina-2001">Alianza</a></em>, which took power in 1999 thanks to massive middle class support. But the <em>Alianza</em> couldn’t do anything to turn the country’s recession around, and those cuts to the middle classes sealed the deal against it. The disillusion was so massive that a quarter of the electorate, most of it from those middle classes, opted to cast blank ballots rather than backing <em>Alianza</em> candidates again in the October 2001 mid terms. Two months later, with the financial crisis deepening, those same middle classes joined street protests <em>en masse</em> and President Fernando De La Rúa announced his resignation.</p> <p>Peronism used that 13 percent cut as a rhetorical stick to beat its opposition during its decade in charge afterwards but, when adjusted for inflation, Peronist cuts ended up being bigger. Pensions were not adjusted upwards after the massive 300 percent devaluation of <strong>2002</strong>, and the hikes that came later privileged the lowest earners. Those in the highest echelons of the pension pyramid launched a wave of demands against the Kirchnerite government, protesting because their higher contributions during their working days were not being respected, but to no avail. Despite winning in the end after many years of legal battles, pensioners often died before the State came around to paying.</p> <p>But the <a href="https://gettheessential.com/economy/2019/09/19/argentinas-two-peronist-led-economic-recoveries-carlos-menem-eduardo-duhalde-nestor-kirchner-alberto-fernandez-hyperinflation-financial-banking-crisis-1989-2001">strong economic recovery</a> seen during the early Kirchnerite years meant this mattered little for the government’s consolidation of power. The 2008-2009 economic crisis made things harder for Peronism, however, and an opposition-controlled Congress sanctioned a bill forcing the government to adjust payments to the highest-earning pensioners in <strong>2010</strong>. Then-president Cristina Fernández de Kirchner went for the unpopular option of vetoing those pension hikes for the upper echelons, citing fiscal responsibility, but Argentina’s last years of strong growth in 2010 and 2011 were enough for the topic to be quickly forgotten.</p> <img class="wp-image-7914 aligncenter" src="https://gettheessential.com/wp-content/uploads/2020/02/Graphic-1909-768x563-1.jpg" alt="GDP growth over the last few Argentine administrations" width="627" height="460" srcset="https://gettheessential.com/wp-content/uploads/2020/02/Graphic-1909-768x563-1.jpg 768w, https://gettheessential.com/wp-content/uploads/2020/02/Graphic-1909-768x563-1-300x220.jpg 300w, https://gettheessential.com/wp-content/uploads/2020/02/Graphic-1909-768x563-1-600x440.jpg 600w" sizes="(max-width: 627px) 100vw, 627px" /> <p>The two patterns that emerge here is that Peronism has tolerated these cuts better than non-Peronism, and that if strong economic growth follows then the cuts are much more easily ignored. The plunge in Macri’s popularity after his <strong>2017</strong> pension reform, which resulted in cuts in real terms across the board, seems to be further confirmation of both theses.</p> <h2><strong>Signs of discontent?</strong></h2> <p>So far, the signs of discontent are sparse an disorganized.</p> <p>One of the potential sources of criticism to Fernández could be the Kirchnerite wing of the ruling coalition, often critical of anything that looks like austerity. But so far that has not been the case. One of the most popular journalists of that sector, Roberto Navarro, said Fernández’s announcement would help Argentina “<a href="https://twitter.com/robdnavarro/status/1228435644550086657">climb out of recession</a>” and praised the simultaneous decision to make some of the most popular medicinal drugs <a href="https://twitter.com/robdnavarro/status/1228460044779499520">free for pensioners</a>, saying it amounted to “the creation of a new right” that “drastically changes the situation (for pensioners)”.</p> <p>From a different political wing, however, the first act of discontent came earlier this week, as a small group of pensioners <a href="https://www.lanacion.com.ar/politica/15f-con-jubilados-marchan-plaza-mayo-nuevo-nid2334208">went to Casa Rosada</a> to protest the reform.</p> <p>Meanwhile, lawyers are already working on <a href="https://www.cronista.com/economiapolitica/Por-que-el-anuncio-del-Gobierno-sobre-las-jubilaciones-podria-generar-una-ola-de-juicios-al-Estado--20200218-0041.html">complaints against the new formula</a>, similar to those seen during the Kirchnerite era. But with a <a href="https://gettheessential.com/politics/2019/04/11/casa-rosada-fears-peronist-majority-is-emerging-in-supreme-court">friendly Supreme Court</a> and long waiting times in the courts, such cases could take years before the State is forced to cough up more cash.</p> <p>As is well known in Argentina, however, courts can <a href="https://gettheessential.com/politics/2019/09/05/judges-mauricio-macri-administration-kirchnerite-corruption-cristina-kirchner-argentina-fernandez-election-courts">switch their allegiances</a> when political and economic times change. And as the aforementioned history shows, an economic recovery is key to make a bitter reform tolerable. How long will Argentines give Fernández to achieve it?</p> <p>

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Ignacio Portes

Ignacio Portes is The Essential's General Editor. Former Economy editor at the Buenos Aires Herald, he has also written for publications such as Naked Capitalism, NSFWCorp and Revista Debate.