Argentine cuts put construction jobs on the line

Reuters, BUENOS AIRES

Sat, Sep 08, 2018 - Page 10

Argentina could shed about 40,000 jobs in its construction sector in the coming months as high interest rates hurt financing and the Argentine government scales back projects to cut its budget deficit, industry executives and union leaders said.

With the Argentine central bank holding interest rates at a punishing 60 percent in an effort to curb high inflation and halt a slide in the peso, construction executives said there was no credit available to finance public works promised by Argentine President Mauricio Macri’s government.

“Banks are withdrawing financing from public works companies. It’s concern over the fiscal adjustment that will hit public works,” Chamber of Construction president Gustavo Weiss said.

The government this week announced a raft of austerity measures as it seeks to slash the deficit and restore confidence in the peso, which has lost 52 percent of its value so far this year.

The government is to slash spending and raise taxes in a bid to balance its primary budget next year — before debt servicing is taking into account — compared with a previous target of a deficit of 1.3 percent of GDP.

The new measures come as Macri seeks to convince the IMF to accelerate disbursement of loans according to a US$50 billion financing deal reached in June, amid some investors’ concerns that Argentina might not be able to service its dollar debts next year.

Weiss said that high interest rates and the weakness of the peso were making it difficult for local companies to get financing for projects or to buy imported materials.

“It’s possible that there will be 40,000 layoffs or even more because of cuts to public work,” Weiss said, adding that the estimate was based on consultations with member companies.

That would account for about 10 percent of the roughly 400,000 workers formally employed in construction, according to the chamber’s IERIC statistics agency, not including informal labor.

A sharp slowdown in Argentina’s construction sector, already reeling from a major corruption scandal, would deal a heavy blow to an economy due to enter recession this quarter. It could also increase political pressure on Macri, who is expected to run for re-election next year.

A spokesman for the Argentine Ministry of Labor downplayed what he said was a seasonal decline in the employment in the sector.

“There has been a slowdown in growth, and a slight monthly decline in jobs due to the winter season and some instability in the industry,” the spokesman said.

According to a central bank poll of economists published on Tuesday, Latin America’s third-largest economy is expected to contract 1.9 percent this year.

An official at Argentina’s Construction Workers Union, who asked not to be identified, said the austerity program could reduce public works by 50 percent next year, based on feedback from companies in talks with the government.

The official said the union, the sector’s largest, also estimated after consultations with businesses that there could be as many as 60,000 worker layoffs over the next six months as expectations for next year decline.

“If this crisis doesn’t ease, it could be many more,” he said.