Economic populism has come home to roost in Argentina as the country is facing an energy shortage after imposing price controls five years ago, with predictable results.
LAST year, as the southern hemisphere's winter stretched Argentina's vulnerable energy infrastructure to near breaking-point, Guillermo Moreno, the internal commerce minister, sought to assure the public that the fuel shortages would be only temporary. “It will rain diesel,” he vowed. Now, as the country faces its worst energy shortage in nearly 20 years, even a sprinkle of diesel would be a relief.
The end of May brought an unseasonably early cold snap, leading homes to turn up their heaters. This, coupled with the failure of a power plant, caused the collapse of both the power grid and the fuel supply system. In Buenos Aires, two of the wealthiest districts were plunged into darkness. Across Argentina, electricity supplies to industrial users were severely curtailed, causing temporary workers to be laid off. Service stations ran out of the compressed natural gas that powers many Argentine cars, including 90% of the capital's taxis. At least this meant fewer jams, the official news agency noted brightly.
Analysts have long predicted that the consequences of the government's populist energy policies would begin to be felt this winter. During Argentina's 2001-02 economic crisis, the government forcibly converted all energy tariffs from dollars to pesos, representing a cut of nearly two-thirds in their real value. Since then, only a handful of modest increases have been permitted, resulting in energy prices that are some 40% lower than those in neighbouring countries.
This has caused private-sector energy investment to grind to a virtual halt, while the economy has grown by nearly 9% a year. As a result, Argentina's proven gas reserves have fallen from more than 20 years' worth of production in the mid-1990s to less than ten years' worth today, and it can no longer produce enough electricity to cover exceptional demand.