Wednesday, July 24, 2024

ECONOMY | 16-01-2024 17:16

In danger of extinction? Argentina’s middle class slammed by crisis and austerity measures

The removal of subsidies, rising rent and the increased costs of prepaid healthcare schemes and private schools are slamming the middle class, specialists warn. March will be a difficult month with the start of classes and the billing of basic public services shooting up.

The removal of subsidies for transport and energy, heavily increased charges for prepaid health schemes, high inflation and the consequent loss of purchasing-power are hitting Argentina's middle class hard. In the short term, they are swelling the ranks of 47 percent of the population that already lives below the poverty line.

 “The new poor are middle-class sectors, mainly from the lower middle class, who are affected by austerity due to the deteriorating real earnings of their households,” said Juan Ignacio Bonfiglio, a researcher at the UCA Catholic University who specialises in living and housing conditions, in an interview.

The institution measures the standard of living, taking into account the access to rights such as decent housing, domestic service, education, diet and health.

According to the latest data from City Hall’s statistics bureau, a standard four-person family household needs earnings superior to 745,270.73 pesos a month in order to be middle-class, always assuming that family to own its place of residence – average rent prices increased 260 percent in 2023 (including 18.6 percent last month), a figure well ahead of the annual inflation rate of 211.4 percent. 

Tenant associations denounce that despite the potential increase in the supply of housing units after the government’s repeal of the Rent Law, the possibility of agreeing contracts without minimum periods or security deposits is doing more harm to those who need to rent accommodation. A two-room flat averages a monthly 334,800 pesos and a three-room flat 460,000.

Another blow to middle-class pockets is the withdrawal of subsidies from electricity and gas bills. Following a public hearing to determine gas invoicing, the government gas announced a reduction of subsidies for January, February and March. According to the calculations of the Economía y Energía consultancy firm, the middle class will suffer increases superior to 600 percent between January and April for this service.

Following President Javier Milei’s emergency decree DNU 70/2023, prepaid healthcare schemes have announced increases topping 80 percent for the first two months of this year. Medicaments also ran ahead of inflation with prices tripling in the last 12 months. 

Food consumption – with post-devaluation increases of up to 150 percent for some items in the first month – decelerated strongly last month overall. According to CAME (Confederación Argentina de la Mediana Empresa) retailers’ association, last month’s sales showed a general fall of 13.7 percent as against the previous December, while the year-on-year decline for sales of food and beverages was a worrying 19.8 percent.

 “All these measures we are seeing can be expected to impact middle-class sectors during this year, at least to an important degree. The reduction or withdrawal of subsidies and the loss of real salaries as a consequence of inflation,” continued Bonfiglio.

 “There are also other aspects we do not know in the middle or long term but surely likely to affect middle-class conditions, which have taken a hit in recent years. Middle-class sectors are the explanation of the increased poverty in the last four or five years,” he said.

The researcher estimated: “Probably in the next few years these dynamics will continue leading to increased poverty, probably destitution but poverty above that level for sure.”

UCA’s Observatorio de la Deuda Social (Social Debt Observatory) also measures the standard of living is the access to education – for the start of the school year the different chambers grouping private schools anticipate increases of between 30 and 50 percent.

With all this, monthly inflation will average around 20 percent between December and March, forecasts the Ecolatina consultancy firm, which, they estimate, will bring down real wages by around 10 percent during that period. 

This fall, added to lowered interest rates for fixed-term deposits and not permitting withdrawals from UVA (Unidad de Valor Adquisitivo) deposits designed for mortgages for the next six months instead of three, also deepens the reduced capacity for middle-class savers, already a trend in previous months.

“Every new crisis with a major destabilisation of the macro-economic variables impacts living conditions. What we have been observing is that each one of these crises marks new floors for poverty and destitution,” affirmed Bonfiglio.

Although “a process of recovery and improved living conditions” tends to be observed after each crisis, added the expert. The problem is “that the rebound is to a level worse than prior to the crisis – this is not inevitable but those are the dynamics repeated in the last few decades in Argentina,” he concluded.

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Agustina Bordigoni

Agustina Bordigoni


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