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Argentine downturn fails to cut inflation

July 12, 2012 at 4:12 PM   |   Comments

BUENOS AIRES, July 12 (UPI) -- Argentina's economic slowdown is failing to cut inflation, as was widely expected, amid labor disquiet over policies left unchanged by President Cristina Fernandez de Kirchner.

Fernandez is under fire from labor unions' representatives and farmers over her refusal to ease the plight of vast sectors of the economy that have been bruised by the economic downturn and a continuing price spiral.

Agriculture, construction and manufacturing across a range of industries are now widely seen to be the worst hit, analysts cited in Argentine media said.

Slow growth is beginning to affect the labor market and depress demand as the jobless and the underemployed shun consumption and the credit squeeze tightens on the least privileged of the working population, said the analysts.

The Ecolatina economic consultancy said the first half of 2012 "has not been encouraging."

The consultancy, founded by former Economy Minister Roberto Lavagna, said a trend toward economic stagnation was "palpable."

"Inflation does not yield, the exchange money market tension persists, the fiscal situation is deteriorating and international reserves have not grown," Ecolatina said in its report.

There was no immediate official reaction to the critical assessment, but Fernandez in the past months has reacted swiftly to restrict economic analyses seen to challenge the government line. Economic analysis firms have been taken to task for releasing independent data that conflicts with the government's own statistics and for questioning official versions of Argentina's economic performance.

Several factors have influenced Argentina's economic and investment climate, including the nationalization of YPF, the Argentine unit of the Spanish energy giant Repsol, and restrictive trade practices condemned by the European Union, with whom Argentina and other South American nations are negotiating a free trade agreement.

Talks for preferential commercial terms between the EU and Latin American states grouped in the Mercosur trade pact have snagged on Argentine moves to restrict imports and introduce complex rules for EU and other regions' goods entering the country.

In addition to the construction slowdown, capital goods imports by Argentine firms dipped 24 percent in the first five months of the year, independent data showed.

Amid those telltale signs of a slowdown, however, inflation has remained high and prices have not budged.

"Inflationary pressures are bound to persist even in a recession scenario," the Ecolatina report said.

Meanwhile, disputes over pay and working conditions have dragged Fernandez into internal squabbles within major organized labor unions.

"Cristina Fernandez and Kirchnerism face the greatest organized labor challenge since they took office in 2003," political analyst Rosendo Fraga said, MercoPress reported. Fraga, head of the Buenos Aires think tank New Majority Studies Center, echoed other analysts who see the president's economic and political problems mounting in the coming months.

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