Argentine Elections: Industrial Strike
and Trade Challenges Up Ahead

Argentine Elections: Industrial Strike
and Trade Challenges Up Ahead

Executive Summary

Argentina’s Peronists swept back into power on October 27, 2019, as Alberto Fernandez and his running mate, former president Cristina Fernandez de Kirchner, defeated incumbent president Mauricio Macri. 

The Peronist victory marks a shift away from austerity measures implemented by Macri which failed to reduce unemployment and stabilize inflation rates. Over the past four years, Argentina has experienced significant economic challenges that the Macri administration sought to address in part by taking on a USD 56.3 billion (EUR 51.05 billion) loan from the International Monetary Fund (IMF) in 2018 and implementing strict austerity measures. 

Economic distress paired with the IMF deal and accompanying austerity measures sparked several protests and demonstrations, particularly in the cargo transportation sector. 20 cargo transportation strikes, 50 port strikes, and 63 aviation worker strikes have been recorded since Macri’s election in 2015 and have had a considerable impact on the country’s flow of goods and supply chains. 

Fernandez’s running mate, former president Cristina Fernandez de Kirchner’s administration was characterized by isolationist policies, leading many to question the country’s trade outlook. The duo are now responsible for negotiating the terms of the IMF bailout, maintaining the Mercosur-EU trade deal, and mending the fractured relationship between Argentina and its main trading partner, Brazil. 

This report outlines the impact previous strikes have had on supply chains as well as Argentina’s trade policy outlook under the new Peronist administration. 

Introduction

The 2019 Presidential Election was largely viewed as a referendum on the presidency of incumbent Mauricio Macri. The contenders included President Macri running for 4 more years on a ticket with Justicialist Senator and former Frente para la Vitoria (FpV or Kirchnerist) member Miguel Angel Pichetto, and the opposition Justicialist-FpV ticket of Alberto Fernandez and Cristina Fernandez de Kirchner. The outcome of the election will have notable implications for the country, especially in areas pertaining to production and logistics, for the next four years. 

An obligatory primary election was conducted on August 11 to confirm party ticket candidates ahead of the first round of the general election on October 27. The primary result saw the Macri-Pichetto ticket gain 33% of votes, and the Fernandez-Fernandez ticket gain 47%. With 97.13% of votes in as of October 30, the Fernandez-Fernandez ticket emerged victorious on October 27 with 48.1% of the vote, exceeding the 45% threshold required to avoid a second round, compared with the Macri-Pichetto ticket’s 40.4%.

Since 2015, Argentina has had to continually contend with challenges to its economic outlook, a combination of the end of the commodities boom as well as servicing decades-old debt. Part of Macri’s agenda has included a series of changes to public benefits policy as well as policy impacting organized labor. As an expression of discontent with these policies, Macri has faced a series of demonstrations by employees in the cargo transportation sector since February 6, 2018. 

While organized for different reasons, the past 4 years have also seen a considerable amount of industrial action in Argentina’s aviation sector, primarily oriented around Ezeiza International Airport (EZE) since 2017. The country has also seen a notable share of port strikes since November 2017, at the Port of Buenos Aires as well as commodity ports along the Parana River. The Parana River ports are notable means of shipping bulk commodities, and the Port of Buenos Aires serves as the country’s gateway to overseas markets beyond Latin America. This report will explore how future labor unrest at these transportation hubs can impact the free flow of goods and supplies that businesses, both in and outside of Argentina, rely on. 

The Argentine national export profile includes manufactured industrial products, such as electronics, heavy equipment, and automobiles, as well as raw agricultural commodities such as soy, wheat, corn, and beef. While the end of the commodity boom has proven deleterious for both industries, the manufacturing sector has suffered greater losses. Honda, Volkswagen, Peugeot, and Ford are cutting hours and laying off workers, reflective of broader regional trends, as manufacturers in neighboring Brazil implement similar measures as part of restructuring. 

An important consideration of analysis throughout this report, as well as for anticipating impacts to come after the election, is the role of President Macri’s fiscal policy as a contributor to industrial action. General strikes are often organized by one of two trade union centers in Argentina: the CTA or the CGT. These unions are more likely to organize a general strike, often lasting 24-48 hours, in response to a government fiscal action than individual sectoral unions, such as pilots, metallurgists, or cargo transporters. However, with their organizational capacity, a disruption of 24-48 hours of duration can bring logistics and manufacturing operations throughout the country to a halt.

In complicate matters, the newly elected government is now responsible for negotiating the terms of the IMF bailout, maintaining the Mercosur-EU trade deal, and mending the fractured relationship between Argentina and its main trading partner, Brazil. This report explores how these events may impact supply chain operations in Argentina in the coming years.

Labor Unrest

When Macri took office in 2015, a balance-of-payments crisis was imminent, foreign-exchange reserves were diminishing, and inflation levels were at record levels. He lifted capital controls, which limited trade in foreign currency, and cut subsidies to the utility and transportation industries to tackle Argentina’s increasing fiscal deficit. In 2018, Macri sought a USD 56.3 billion (EUR 51.05 billion) bailout from the International Monetary Fund, the biggest in the Fund’s history. The bailout placed strict obligations on Argentina’s economic and monetary policies, which Macri tried to fulfill by implementing austerity programs. Many point to the austerity measures as the main reason for civil unrest throughout the country and for Macri’s defeat during the recent election. 

A total of 411 strike actions with a discernible impact on supply chains have been recorded since the election of Mauricio Macri in 2015. 50% of these are directly related to primary and secondary sector industry or modes of transportation. 

Source: Everstream Analytics

Transportation strikes

Looking back on the last administration’s tenure, there were 63 aviation worker strikes, most of which were centered on Ministro Pistarini Ezeiza International Airport and Aeroparque Jorge Newbery. Unions organizing such strikes were predominantly the UPSA, ATCPEA, APTA, ALPA unions and the United Aeronautics Union. Due to the nature of the Argentine civil aviation industry, mostly Aerolineas Argentinas and Austral flights were affected, albeit with some impact on regional destinations such as Argentina’s neighbors Brazil, Paraguay, Bolivia, and Chile, as well as neighboring airlines such as Avianca and LATAM. 

Of the 50 port strikes initiated during this time, SOMU, FeMPINRA and SUPA were usually the specialist unions involved, along with CTA and CGT. These incidents typically occur along the River Plate and Parana River for barge shipping. Any impact on the Port of Rosario would be the more notable as it is responsible for 80% of Argentina’s grain exports, 90% of which is exported by barge. Barge shipping, however, accounts for only 1% of container shipping in the country. 

In the same period, there were 20 cargo transportation strikes and threats to strike. While some of these strikes were organized by specialist cargo transportation unions such as ACNOA, Fadeeac, Sichoca, or the Union of Cargo Transporters, as well as truckers affiliated with specific industries such as agricultural or industrial commodity shipping, a considerable quantity were organized by the CTA and CGT. More often than not, these strikes are organized in single localities or provinces, whereas CTA and CGT ones are organized more regionally and nationally. 

Industrial action & organized labor

Metallurgist strikes, whether organized independently or within the context of larger labor movements, have the potential to disruption production activities. The largest component union of the CGT is the Union Obrera Metalurgica (UOM), and either a general strike called by the CGT or an independently-organized UOM strike would have the capacity to adversely impact production. Extractive and secondary industries source fabricated steel as well as advanced technological metals from Argentina for the technology, construction, industrial, and agricultural sectors.

Most of the general strikes have been organized by the Central de Trabajadores de la Argentina (CTA) trade union center, a spinoff of the Confederación General del Trabajo de la República Argentina (CGT) trade union center representing 40% of the Argentine workforce. 

While such strikes employ multiple sectors, the role of the transport unions has, in the past, affected the movement of goods from riverine shipping of raw products on the Parana River and the River Plate to the export of primary and secondary goods overseas by air. Furthermore, transportation union participation in general strikes as well as direct actions such as roadblocks by CTA-affiliated actors can halt shipping by land, sea, and air, creating congestion most pronounced in the capital region. Given the considerable concentration of export-oriented trade in Buenos Aires relative to the rest of the country, general strikes can have notably adverse effects on the unimpeded flow of supplies and finished goods. 

A notable point of consideration is the role played by union organizer Hugo Moyano, former head of the MTA truckers’ union and the CGT, and current trucking union secretary general in Buenos Aires, in organizing the ground transportation component of general strikes faced in Argentina in 2018-19. 

Moyano has held executive positions in the now-opposition Justicialist Party during the tenure of then-President and the newly-elected Justicialist Vice-President, Cristina Fernandez de Kirchner. While Moyano has played a role in organizing strikes during the Macri presidency, his relationship with Fernandez de Kirchner are similarly acrimonious, and therefore no one outcome of the election or another can result, with certainty, that the aftermath of the election will result in an end to cargo transportation strikes.

What to expect

In the past 20 years, the CTA has been more likely to employ piqueteros, or professional picketers or demonstrators, in its direct actions in comparison to the CGT, and has been known to organize them as a component of disruptive demonstrations in historical manifestations against fiduciary conditions wrought by the IMF in 2001 and 2002. A CTA-organized strike may involve a greater propensity for actions ranging from roadblocks, contention with law enforcement, property damage, and plant takeovers in the most extreme cases.

There is also value in considering the relationship of IMF measures to the potential for strikes. A combination of restrictive fiscal requirements and the prospect of limited lending have led to a near-correlation between IMF proposals in Argentina and general strikes. 

The general strikes organized around IMF deals have been organized by the CGT, which garners relatively high participation rates, and offers longer prior notice than CTA-sponsored strike actions. Unannounced disruptive direct action, however, tends to erupt during these events, as exhibited in 2001 and 2018.

The status of state-owned enterprises for the next four years as well is important to factor in to the overall situation in the country. At present, there are no indications of privatization faced by major state enterprises, such as the YPF oil company or the Fabrica Argentina de Aviones aerospace hardware company. YPF is at risk of default, however. If events in Brazil with Petrobras are any indication, attempts to manage a default through debt swaps, asset sales, or fiscal belt-tightening that could be perceived as placing employee benefits at risk can serve as catalysts for future industrial action. 

After Argentina’s markets collapsed in the week following the primary win, Mr. Fernández attempted to calm market fears by insisting that if he wins the election he will not crash out of the IMF deal, but will instead renegotiate it and extend maturities. In the event, however, that the public would lack confidence in this ability, adverse effects on the transportation sector can be expected and the possibility of further industrial action in the sector should be anticipated.

Trade Policy 

The EU and Mercosur members reached a draft deal in June 2019 which now must be ratified by all EU and Mercosur member states. 

The EU-Mercosur trade agreement includes cutting tariffs and eliminating high customs duties in four key sectors; cars and parts, machinery, chemicals, and pharmaceuticals. The agreement also includes the “precautionary principle” which ensures that the EU and Mercosur members can continue to regulate, including on environment or labor matters even if this affects trade, even when scientific information is not conclusive.

The accord was an achievement championed by the Macri administration. While the Fernandez campaign had not explicitly condemned the deal outright, Fernandez himself expressed skepticism that the accord’s content as agreed in principle would be conducive to the Argentine national interest. The accord can only come into force with the consent of the constituent’s legislatures. With the recent election results, the fate of the accord in Argentina is yet to be determined. 

The main opposition to the deal will likely stem from populist politicians and political interest groups from both blocs. In South America, manufacturers, especially auto companies, are wary of the trade deal as they have historically been protected from European competition by high tariffs. The future of Mercosur and more generally the EU-Mercosur agreement largely depends on decisions made by Argentina and Brazil. 

Uncertainty for Mercosur

The future of the trading bloc remains uncertain as Brazil and Argentina are experiencing economic hardships and political unrest. Brazilian President Jair Bolsonaro has threatened to either have Brazil leave the Mercosur economic bloc, or effect efforts to make Argentina leave in the event of a Justicialist victory. Moreover, while individual EU member states have threatened penalty on Brazil due to concerns over the Amazon in the form of trade withholding, EU sources have stated that this is unlikely to threaten the deal, and such penalties would be unlikely to reverberate in Argentina. However, any hesitation on enacting the deal, or enacting policies prohibitive to unimpeded trade may alter the previously permissive trade environment into a more uncertain one at best, and one that is confrontational with Brazil, Argentina’s largest import and export partner, and other trade partners at worst.

Cross-border automotive trade

During Macri’s tenure, Brazil and Argentina have signed off on an automotive trade accord in July 2019 that will facilitate bi-directional cross-border automotive trade between the two countries, albeit postponing free trade until 2029. Brazil and Argentina hold a considerable share of the South American automotive manufacturing market, despite a downturn as automotive manufacturers restructure. Such a downturn has brought several production halts and closures. 

While most industrial action involving automotive metallurgist unions so far has revolved around the anti-austerity demonstrations, it is reasonable to assume that any further deterioration of the industry can result in further industrial action. The incoming Fernandez government has not expressed opposition to trade as a principle, yet more export taxes can be expected across the board. 

Furthermore, given the stated impetus of the Fernandez ticket to forgo perceived extra-concessionary deals such as the EU-Mercosur deal, as well as the personal antipathy between Bolsonaro and Alberto Fernandez, this deal as well as the prospect of future trade cooperation between the two countries may be at risk.

Outlook

The Fernandez victory presents unique challenges for ensuring the unimpeded flow of supply chains and maintenance of logistics networks for the next four years. 

With the Fernandez-Fernandez victory ensured, there is a greater possibility of abatement of contractionary fiscal policy that may contribute to greater general strikes. If the new government is able to fulfill its campaign promise to prioritize economic growth as a way to pay off IMF debt, such conditions would abate the possibility of all-economy strikes. 

However, this does not eliminate the risk of industrial action in specific sectors, especially transportation, in the event of macroeconomic contraction. A notable precedent from 2012, under Cristina Fernandez de Kirchner, saw a period of fiscal austerity that brought strikes, led by Hugo Moyano, during the 3rd week of November that paralyzed both primary industries and transportation providers. While the new government may be able to forge conciliatory relationships with trade union centers such as the CGT in labor disputes, moves such as those of the trucking unions led by Moyano illustrate that constituent unions may not always cooperate if their demands are not met.

Moreover, the incoming PJ-FpV government poses challenges to trade. The most predominant of these challenges will be with ratification of Mercosur free trade initiatives. If the incoming government elects to forgo such agreements, it could risk complication of trade with the EU as well as other Mercosur members, Brazil included. 

Those conducting business in Argentina should be mindful of the impacts of the election on propensity for disruptive strikes and the potential for jeopardized trade policies and agreements and should plan accordingly.

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