Buenos Aires — Argentinian President Mauricio Macri said Wednesday he will impose a 90-day freeze on oil product prices, part of a battery of measures to assist consumers and small businesses after a plunge in the exchange rate this week accelerated an annual inflation rate already above 55%.
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The freeze will shield diesel and gasoline prices from the peso's drop against the dollar since Monday, Macri said in a taped speech on television.
The peso plummeted to 58.33 to the dollar on Tuesday from 46.55 on Friday, according to the central bank.
The drop came after Macri suffered a rout in Sunday's presidential primaries, putting his re-election bid at risk -- and putting ice on investment decisions in the energy sector.
The economic measures, which also include an increase in the minimum wage, tax breaks and an additional payment of social welfare and unemployment insurance, will cost the state an estimated Pesos 40 billion and benefit 17 million people, or 39% of the country's 44 million population, Macri said. The measures will also benefit small and medium-sized companies, he added.
Macri made the comments three days after more people than expected snubbed his conservative coalition for failing to contain inflation and pull the economy out of a recession now in its second year. Macri got 16 percentage points less in votes than Frente de Todos, a populist coalition that ran the country from 2003 to 2015. He had been expected to get only 3-5 percentage points less ahead of the vote.
The primary, considered a national poll, has raised doubts that Macri can win a second four-year term in the October 27 general election.
To try to rebuild favor with the electorate, Macri apologized for his comments in a press conference Monday, when he blamed the plunge in the peso and a 38% rout in the local stock market on investor concerns that the populist opposition would implement the capital, currency, pricing and trade controls that they used in the past. His comments were taken as a slight against voters who cast their ballots for the opposition, angering many people.
Macri added that he understood that the economic hard times had led so many people to vote against him, and he said he accepted responsibility for the fact that so many Argentinians "are tired and angry" and find it hard to make ends meet each month.
"That this has happened is purely and exclusively the responsibility of my government and me," he said.
Macri, who took office in 2015, has focused his economic plan on cutting state spending, including on subsidies that had made gas and power prices among the lowest in the world. The effort was designed to balance the budget in four years with the idea of setting a sound base for the economy to grow sustainably. Overspending and a fiscal deficit have been at the root of the country's economic problems over much of the past century.
However, he said the economic plan "ended up being an exhausting requirement for many people" in their day-to-day lives.
RETURN TO OLD PRICING POLICIES
The freeze on diesel and gasoline prices is a return to policies that hit oil refiners and retailers for much of the past two decades, curbing profit potential and making it hard to plan business.
While Macri removed the price controls in 2017, he brought them back in May 2018, albeit briefly. At that time, the country's three biggest refiners -- state-controlled YPF, BP-controlled Pan American Energy and Shell -- agreed to cap pump prices for two months to help fight inflation, then at 25%.
The refiners, which together account for around 80% of refining capacity and retail sales, have since been raising prices in line with fluctuations in the exchange rate, international crude reference prices and biofuel additive costs.
Macri, a staunch supporter of free-market policies, didn't cap product prices again until now, even as inflation continued to rise to a latest peak of 55.8% in June.
However, this past April his government froze residential natural gas and power prices and public transport fares until the end of 2019.
That decision accelerated a shift in the upstream sector to produce oil over gas, with many companies moving their drilling efforts to the oil window in Vaca Muerta, the country's largest shale play that is driving oil production growth.
This latest price freeze may slow drilling efforts as it depresses local crude prices, given that most of the production is sold domestically.
Refiners may also get hit by lower profit margins, as they won't be able to raise prices to compensate for the impact of the devaluation on costs, including for imported petroleum products.
While the country has not been importing crude for more than a year thanks to rising domestic production, many refiners have been importing premium products because they don't have the capacity to produce enough to meet stricter specification requirements, such as for 98 RON gasoline and ultra low sulfur diesel.
Argentina produces around 500,000 b/d of crude and has refining capacity to run about 560,000 b/d, but demand averages between 450,000 b/d and 500,000 b/d, according to Energy Secretariat data.
Demand for oil products, however, has declined over the past year due to a shrinking economy, leading refiners to run less crude. They used 73.8% of installed capacity in June, down from more than 80% before the economy fell into recession in April 2018, according to data released Tuesday from Indec, the state statistics agency.
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