Big Raises In Argentina Foreshadow Complicated Wage Talks

Workers in the Argentine oilseed-crushing industry won a 24% pay raise this week in the first salary deal of 2012, setting a high bar for upcoming wage talks in other sectors.

Most Argentine unions negotiate annual salary increases with employers between March and May each year, but unions in the banking and crushing industries were early movers. Bank employees secured a preliminary increase of 23.7% last month, which the union said will serve as a base for further wage talks in March.

"Organized labor remains powerful in Argentina, and local observers expect average increases to settle around 22% to 23%," Standard Chartered Bank said in a report.

That would be considerably higher than the 18% increase the administration of President Cristina Kirchner reportedly wants unions to accept in 2012.

But Kirchner will have a hard time convincing unions that have enjoyed government-backed pay raises of close to 30% in recent years to cede ground.

Analysts say those outsized wage increases are the product of inflation that most private-sector forecasters estimate at between 20% and 25%. The heavily criticized national statistics agency, Indec, said inflation as measured by its consumer price index eased to 9.5% at the end of 2011.

Argentina's inflation conundrum is largely the product of lax fiscal and monetary policy coupled with a booming economy that expanded 9.2% for a second consecutive year in 2011.

Rather than cutting spending and tightening monetary policy, Kirchner's government has resorted to price controls to try to keep inflation from getting out of hand.

Doubts about Kirchner's high-growth, high-inflation economic policies led residents and investors to pull more than $18 billion out of the country during the first nine months of last year alone.

Inflation is also slowly eroding the competitiveness of exporters who face soaring material and wage costs.

The base salary for oilseed crushing workers has nearly tripled since 2009, with this week's increase bringing it to 6,200 pesos ($1,442) a month.

The union based its salary demands on a cost-of-living study produced by the Rosario National University, said Carlos Zamboni, an attorney for the union.

The government's desire to limit wage increases this year has put Kirchner squarely at odds with her former ally Hugo Moyano, who leads the powerful Confederacion General del Trabajo trade union confederation.

Moyano has balked at what he sees as an attempt by the government and employers to make workers bear the economic costs of cooling inflation.

The former truck driver has frequently said unions will base their 2012 salary demands on "supermarket prices" and not official inflation data.

That could make for tense salary talks in coming months as unions loyal to Moyano resist calls by the government and big business to moderate their wage demands.

Negotiations between the oilseed-crusher union and grain exporters like the Bunge Ltd. (BG) and Cargill Inc. were tense, with the Labor Ministry ordering both sides to the negotiating table after the union went on strike in December.

-By Shane Romig, Dow Jones Newswires; 54-11-4103-6738; shane.romig@dowjones.com

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