Nearly a fourth of Spanish citizens are unemployed, the highest number of the jobless in the troubled eurozone, and there isn't money to hand out to the needy abroad, development agencies learned this week.
Despite the cuts, however, Spain plans to honor emergency aid commitments to the less developed nations in the region and also keep the aid flow to Arab African and other African states that are going through democratic transition.
Spain's financial crisis shows no sign of abating, and both EU and Spanish government officials huddled in urgent talks this week to ease problems of the unemployed and reassure depositors in distressed banks.
Spanish banking woes are worrying Latin American depositors in Spanish banks, especially Santander, which profited last year from the regional boom in economic growth but now stands exposed like other banks in Spain to effects of the eurozone crisis.
Spanish Foreign Minister Jose Manuel Garcia Margallo said the aid cuts were an "an extremely painful option" and senior aides in the ministry dismissed speculation the measure was Madrid's retaliation against Argentina's seizure of a major stake in YPF, the local energy firm owned by Repsol.
Argentina has already legislated to seize Repsol's assets and has yet to clarify how it intends to compensate Repsol. But Spanish Prime Minister Mariano Rajoy again signaled reconciliation rather than confrontation with Argentina over the issue.
Rather than being linked to the YPF-Repsol row, the aid reduction is a direct response to Madrid's review of its current priorities, officials said.
Aid recipient agencies and organizations in Argentina, Brazil, Chile, Colombia and Mexico are likely to be most severely hit. However, Spanish aid to Latin America has been declining in direct response to rising incomes in Latin America. Argentina received only about $5 million in 2011 -- a comparatively small sum but substantial in the current economic climate in Spain.
Spanish development aid to Argentina alone exceeded $100 million over the past five years before the cutbacks began.
Garcia Margallo said the funding cuts were part of budgetary reductions across the board in Spanish government spending. He said earlier the cuts were inevitable even as "they are an extremely painful option" for the government.
Excluded from the list are the poorest countries in the Caribbean and Latin America that, officials said, will continue to receive "emergency aid." Overall, however, Spanish aid is likely to be concentrated more in African countries, including the Arab and sub-Saharan nations going through political change.
Meanwhile, after several exchanges of angry words, Spain has opted for a reconciliatory stance toward Argentina and proposed a new round of talks.
"Relations between Argentina and Spain are deeply embedded in history and an issue such as YPF is no more that a bump in the long shared road, and does not affect the long standing relations," Garcia Margallo said.
Argentine President Cristina Fernandez de Kirchner is considering an invitation to attend a Spanish summit conference in November, officials said.
Argentina expropriated YPF in April. Spain has repeatedly urged Fernandez to honor obligations and compensate Repsol for the seizure.