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LatinNews Daily Report - 26 July 2013

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Argentina: minimum wage lifted ahead of mid term vote

Development: On 25 July President Cristina Fernández announced a 25.2% increase in the minimum wage, and said that the half yearly bonus payment (known as the medio aguinaldo) would be paid on a tax-free basis.

Significance: There is clearly a strong electoral inspiration behind these announcements. They were made a little over two weeks before obligatory primaries are held for the mid-term congressional elections, due at the end of October. They were also made just before a pre-election deadline that bans the government from publicising initiatives that could influence voting intentions.

Key points:

  • President Fernández announced that the minimum salary would be increased by 25.2% in nominal terms, to reach A$3,600 (US$658) a month (/mth). She also said that there would be a retrospective tax exemption on mid-2013 bonus payments. Typically in Argentina, workers are paid a ‘13th month’ salary every year as a bonus, half at the end of June and half at the end of December (these payments are known as medio aguinaldos). As taxes have already been deducted from the June payment, the decision means that around 2.196m salary earners (who are also voters) will receive an unexpected windfall refund just around the time they will be getting ready to vote. 

  • The announcements were made after very rapid consultations with the pro-government trade unions, who had supported a claim for a minimum wage improvement of around 25%, and employers, who had offered 20%. There were no consultations with opposition unions, led by Hugo Moyano of the Confederación General del Trabajo (CGT) and Pablo Micheli of the ‘dissident’ Central de Trabajadores de la Argentina (CTA). These groups have been demanding a minimum salary of just over A$5,000/mth.

  • It is hard to predict the electoral impact of these announcements. But an informed guess is that it will do something to improve the government’s popularity from a low base. One good proxy is the monthly Indicador General de Expectativas Económicas (IGEE) compiled by the Universidad Católica Argentina (UCA) and TNS-Gallup. Analysts say it has proven a good predictor of the pro-government vote. In June, it was up by 4% month-on-month, but down 7.7% on June 2012, and 19.5% on October 2011.