INSIGHT-President's luck tied to Argentina jobs revival

Wed Oct 5, 2011 10:29am EDT

Related Topics

* Fernandez poised for landslide re-election

* Jobs key to government's popularity

* Global woes, falling competitiveness threaten outlook

By Helen Popper

BUENOS AIRES, Oct 5 (Reuters) - The comeback story of Grissinopoli, a bread-stick factory in Argentina, has a lot in common with the country's own economic renaissance.

It also helps explain why President Cristina Fernandez looks set for easy re-election this month even as a worsening global outlook fuels doubts about the sustainability of her unconventional, high-growth policies.

At the height of Argentina's devastating 2001/02 economic crisis, Grissinopoli's workers camped out in the bankrupt factory, stunned to find themselves facing unemployment as the country's jobless rate surged above 20 percent.

Ten years on, the 14 founding partners run the company as a cooperative called "New Hope," they have hired more than 20 new staff including some of their children, and business is brisk.

"Having work is about the economy, and the economy is down to the government," said Ivana Aguero, 51, as freshly baked grissini sticks rolled by on the production line.

"We've had a lot of support (from the authorities), they've helped us with subsidies to buy new machinery. They've opened doors for us," she said, taking a break from packing boxes at the small Buenos Aires factory.

As leaders in richer nations wrestle with discontent over stubborn unemployment, the jobless rate here is around 7.3 percent, its lowest level in 20 years. Unemployment is at 9.1 percent in the United States and 10 percent in the euro zone.

Some Argentine companies are even struggling to find staff with the right qualifications.

"For the kind of positions we fill, there's virtually zero unemployment," said Daniel Iriarte, head of recruitment agency Michael Page International Argentina. Industrial engineers are in particular demand as new factories open and others expand.

Argentine industry languished during a wave of privatizations in the 1990s and a subsequent recession, but a sharp 2002 devaluation ARSB= slashed labor costs and gave it a new lease on life. Five million jobs have been created in Latin America's No. 3 economy since then.

Service sector businesses have benefited too and the state workforce has mushroomed as spending soars. One in four new jobs created since 2006 was in the public sector, according to the Cordoba-based IERAL economic research center.

That could be harder to maintain as the primary budget surplus dwindles. But for now, it is good news for Fernandez.

Opinion polls suggest she could win more than 50 percent of the vote on Oct. 23, giving her a second four-year term and a strong mandate to deepen the unorthodox measures that please many Argentines but irk Wall Street economists and pro-market business leaders and farmers.

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Graphic on growth, jobs link.reuters.com/pyv24s

Election campaign coverage: [ID:nARVOTE]

Political risks in Argentina: [ID:nRISKAR]

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Fernandez, a center-leftist who has softened her combative tone since the death a year ago of her husband and predecessor as president, Nestor Kirchner, often highlights Argentina's revival since the crisis and the $100 billion debt default.

"People in Spain, north Africa or Israel are indignant because they've lost their quality of life and aspirations. In Argentina, the opposite's happened a bit in the last few years," said economist Ernesto Kritz, a labor specialist.

Neighboring countries like Brazil and Chile have similarly low jobless rates but in Argentina, a nation scarred by crises, a buoyant labor market and rising purchasing power bring particular political clout.

Looking to sustain growth averaging 7.6 percent a year since 2003, the government has taken a raft of controversial measures to stimulate the economy and protect local jobs.

When the global financial crisis hit Argentina in 2008, Fernandez slapped import curbs on manufactured goods from toys to shoes, riling leading trade partners Brazil and China.

She has maintained hefty energy subsidies for industry and a managed-float exchange rate policy that keeps the peso nominally weak. More recently, the auto industry agreed to match imports with exports, a policy aimed at boosting the domestic parts industry and a shrinking trade surplus. Importers of Porsche cars are exporting wine to comply.

DOUBLE-DIGIT INFLATION

Still, the rate of job creation has slowed in the past four years and skeptics say such measures will not be enough to shield jobs if external factors sour and as double-digit inflation whittles away the country's competitive advantage.

Many economists say Argentina is at greater risk of a hard-landing than its neighbors as policy stimulus becomes harder to maintain and inflation slows consumer spending.

"They have to give some signals on macroeconomic policy," Kritz said. "Fiscal and monetary policy are still very loose."

A deeper depreciation of Brazil's currency BRBYBRL=, which fell more than 15 percent last month as the Argentine peso was held flat by the central bank, would aggravate the strain of Argentine salaries growing almost 30 percent a year.

"We're still competitive compared with Brazil. The next question is where Brazil's (currency) will go. And there's a much bigger question over the rate of salary increases in Argentina," said Marina Dal Poggetto, an economist at the Bein and Associates consulting firm, adding that more moderate growth would allow sustained progress on unemployment.

"It's not necessary to have the growth we've seen in recent years ... but something in line with the economy's potential growth capacity, which is 4 percent to 5 percent," she said.

The government's goal is to drive overall unemployment down to 5 percent and get more people into formal jobs. About a third of Argentines still work off the books as the smallest firms seek to dodge hefty social security contributions.

Officials' success in moderating wage demands, controlling fractious trade unions and keeping people employed could prove decisive for Fernandez in a second term.

When the global crisis in 2008-09 stalled Argentina's rebound, her approval ratings sank to 20 percent, aggravated by farmer protests over a tax hike on soybean exports.

Officials acknowledge it will not be easy if the world's economic woes translate into lower prices for Argentina's key soy exports or a slump in demand from Brazil.

"It depends on what happens in the rest of the world," said Marta Novick, the labor ministry's under-secretary for technical programming and labor studies. "Considering the state Argentina was in 10 years ago, what's been achieved so far is enormous, but there's still much more to do."

Grissinopoli's workers have modest ambitions.

"Our dream ... is for the factory to keep operating," Aguero said. "For our children to continue along the path we left them and go as far as they can." (Editing by William Schomberg and Kieran Murray) (helen.popper@thomsonreuters.com; +54 11 4510 2505; Reuters Messaging: helen.popper.reuters.com@reuters.net))

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