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4-Traders Homepage  >  Equities  >  SANTIAGO STOCK EXCHANGE  >  LATAM Airlines Group SA    LAN   CL0000000423

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LATAM Airlines Group SA : Argentina's Capital Crippled as Unions Demand Tax, Wage Relief

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11/20/2012 | 07:08pm CEST

(Updates with comments and background throughout)

--General strike called by powerful union boss Hugo Moyano

--Former government ally Moyano now a major critic of the Kirchner administration

--Economic fallout from strike seen as limited

 
   By Ken Parks 
 

BUENOS AIRES--Argentina's capital city was largely shut down Tuesday as a general strike by unions opposed to the government of President Cristina Kirchner disrupted road, rail and air transportation to voice their grievances.

Union bosses Hugo Moyano and Pablo Micheli called the 24-hour strike to demand income-tax relief and better wages for workers amid a backdrop of double-digit inflation.

Picketers blocked major highways and avenues, banks were closed, and trains and a subway line servicing Buenos Aires were also idled. There were also reports of roadblocks in several provincial cities.

Argentina's flagship airline, Aerolineas Argentinas, said it canceled or rescheduled dozens of flights as aeronautical unions walked off the job. Latam Airlines Group SA (LFL, LAN.SN), the largest carrier in Latin America by passengers, also canceled scores of flights to and from Argentina.

The labor action is the latest challenge to Mrs. Kirchner, whose popularity has plunged this year amid public perceptions of high crime, a weak economy and rampant inflation.

Earlier this month, hundreds of thousands of middle-class Argentines poured into the streets of Buenos Aires and major provincial capitals to vent their frustration with the government, which they say isn't addressing their main concerns.

Mrs. Kirchner's top ministers dismissed the strike as a political attack against the government and the general public.

"This isn't a strike because the people didn't want to work, they couldn't [work]," Cabinet Chief Juan Manuel Abal Medina said in an interview with television channel C5N.

Shop owners were among the hardest hit as pedestrian traffic was reduced to a trickle on some of Buenos Aires's busiest streets.

"In my case, only one of my 10 employees was absent, and in my business, sales are down 50% because nobody is on the street," said Martin Hausserman, who owns a small clothing factory that also sells directly to the public.

Abeceb chief economist Mariano Lamothe said the economic activity lost to the strike will be less than that of a public holiday: "The impact is marginal and more concentrated in the service sector in the capital."

Mr. Moyano has emerged as one of Mrs. Kirchner's staunchest foes after she won a second term last year. Both leaders herald from the ruling Peronist Party--a national populist movement founded in 1947. While Mr. Moyano represents Peronism's traditional union roots, Mrs. Kirchner is firmly aligned with the left.

The veteran labor leader wields significant political and economic power thanks to his family's control over the trucking industry. Most goods in Argentina are shipped by road due to the decrepit state of the country's once vast rail system.

Mr. Moyano used to be a close ally of Mrs. Kirchner and her husband, former president Nestor Kirchner. But that relationship quickly soured after Mr. Kirchner died of a heart attack in late 2010.

Mrs. Kirchner has largely ignored Mr. Moyano's demands for higher salaries and greater union representation in Congress, while making concessions to big business that is struggling with soaring labor costs.

The government has managed to trim some of Mr. Moyano's power by dividing the labor movement.

The powerful CGT labor confederation, whose members included most of the country's biggest unions, split earlier this year.

Mr. Moyano now leads the dissident CGT, which has his trucking union at its core. The government-backed CGT, headed by Antonio Calo, secretary general of the metallurgical workers union, is largely comprised of manufacturing unions, which have benefited from Mrs. Kirchner's import substitution policies.

Mrs. Kirchner also managed to divide the CTA--a major labor umbrella group that represents civil servants, teachers and some private-sector unions--into a dissident faction run by Mr. Micheli and a pro-government faction.

Major strikes and street protests have increased this year as Argentina's economy settles into what could be a prolonged period of slower growth after expanding more than 7% a year on average between 2003 and 2011.

Most economists think the economy will struggle to expand 3% this year, which could jeopardize the government's 2013 growth forecast of 4.4%.

The administration's hopes for a rebound next year rest largely on expectations of a record soybean harvest and a recovery in Brazil's economy, which is the No.1 buyer of Argentine goods and services.

But a stronger economy might not be enough to repair Mrs. Kirchner's political fortunes ahead of mid-term congressional elections next October.

Her waning popularity is due in no small part to policy missteps that have angered many middle-class Argentines.

Just days after winning re-election with 54% of the vote in October 2011, Mrs. Kirchner introduced currency controls to stop capital flight that slowly was draining the central bank's international reserves.

The government now decides who can buy foreign currencies, namely dollars, through regulated channels such as banks and exchange houses. Currency rationing has become especially onerous for Argentines who want to travel abroad, with the authorities approving very limited dollar purchases for tourism.

The controls have successfully curbed capital flight, but have damaged business confidence and disrupted activity in important sectors such as real estate. That, in turn, has aggravated an already weak economy, even as analysts say annual inflation remains entrenched at around 25%.

Argentina's fragmented political opposition hasn't been able to capitalize on rising discontent with the government. According to a recent poll by Management & Fit, the opposition's disapproval rating was about 70%, compared to 59% for Mrs. Kirchner's government.

Write to Ken Parks at ken.parks@dowjones.com

--Alberto Messer contributed to this story

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