How a 48-Year-Old Cop Wife Exposes Bond Risk: Argentina Credit

Adriana Rearte, a 48-year-old police officer’s wife, finally took matters into her own hands.

Joined by 15 other wives of officers from Cordoba’s 22,000-strong provincial force, Rearte staged a 55-hour protest in front of police headquarters for their husbands to demand higher wages, which are being consumed as living expenses in Argentina soar by 26 percent a year. Cordoba’s police make as little as 6,000 pesos a month, about $960 at the official exchange rate.

“Our husbands are taking bullets and we’re not getting enough money to cover basic bills,” Rearte said by telephone from Cordoba’s namesake capital of 1.16 million, which lies some 700 kilometers (430 miles) northwest of Buenos Aires.

While Rearte helped the officers win a 33 percent raise, the protest sparked a wave of looting as the police refused to patrol the streets and exposed a rift between Cordoba governor Jose Manuel De La Sota and the federal government, which initially refused his request for help to quell the violence that left at least three people dead.

The incident is also emblematic of how President Cristina Fernandez de Kirchner is undermining Argentina’s economy with her money-printing policies and straining the creditworthiness of the provinces, which rely on government subsidies to pay public salaries, as the peso plummets and growth slows, according to SW Asset Management LLC.

Rising Costs

“It’s a structural problem for some provinces that their costs are rising faster than their revenue,” Santiago Cuneo, an economist at SW Asset, said in a telephone interview from Buenos Aires. “They’re running short on funds.”

Yields on Cordoba’s dollar-denominated bonds due in 2017 jumped to 14.6 percent as the violence spread during the protest, the highest among provincial notes, which average 9.7 percent. Cordoba’s borrowing costs are more than double the yields on junk-rated company bonds in emerging markets, which average 7.7 percent, data compiled by Bloomberg show.

The cost to protect the nation against default over five years with credit-default swaps fell 31 basis points to 1,659 basis points at 2:42 p.m. in New York, according to data compiled by CMA Ltd. That’s the highest in the world.

Consumer prices have increased by at least 20 percent a year for five years, according to independent estimates.

The number of pesos in the economy has jumped 28 percent in the past year and government spending has increased 39 percent. While Argentina maintains that the official inflation rate is 10.5 percent, wage negotiations for public employees usually begin proposing increases of more than 20 percent.

Provincial Contagion

The wives blocked police headquarters in Cordoba at 6 a.m. on Dec. 3, asking the provincial government to double salaries. They left on Dec. 5 at 1 p.m. after the government agreed to a wage increase for officers and a 52 percent raise in benefits.

During the strike, looters smashed supermarket doors and stole goods from food and beverages to flat-screen televisions, according to images broadcast by CN23 television channel. Televised reports also showed store owners and neighbors patrolling streets with rifles. More than 60 people were injured during the unrest and at least one person was killed.

Since the strike in Cordoba, other incidents of looting were reported in Mar del Plata, Buenos Aires province, and in Concordia, Entre Rios province, where one person was killed by electrocution while stealing from a supermarket.

Mendoza province put its police force on alert to head off similar protests. The police were handed raises in La Rioja province after threatening to strike on Dec. 6 and officers in Catamarca province briefly blocked the governor’s exit from the capital to demand better pay.

Destabilization Attempt

Argentine police officers’ protests for higher wages are an attempt to destabilize government, Cabinet Chief Jorge Capitanich told reporters in Buenos Aires today.

It’s not a coincidence that policemen in different provinces are striking at the same time and “the hypothesis that this is a coordinated action will be thoroughly investigated,” Capitanich said.

When De La Sota, who runs the second-largest province and isn’t aligned with the ruling party, asked the government for help at 4 a.m. on Dec. 4 in a message sent from his Twitter account during the looting, Capitanich told the governor to resolve the problem himself.

Financially Sound

The government ultimately sent about 2,000 national police to Cordoba and other northern provinces to help prevent more violence and is monitoring the situation, Capitanich said.

“Investors perceive a higher risk in Cordoba because its political situation is more fragile,” said Alejo Costa, head of research at Puente Hnos Sociedad De Bolsa SA. “Part of provincial revenue is transferred from the government so those who aren’t aligned may get fewer resources.”

Cordoba is financially sound, according to Alejandro Pavlov, an analyst at Moody’s Investors Service.

The province had a surplus of 1.9 billion pesos last year, while Buenos Aires, Argentina’s largest province, had a 9 billion-peso deficit. Government transfers accounted for almost half of Cordoba’s revenue.

“Cordoba is solvent,” Pavlov said in a telephone interview. “It shouldn’t have problems paying its bonds.”

Slowing Growth

A slowing economy will place more strains on the provinces as public employees demand more salary increases to keep up with inflation, according to Puente’s Costa.

Argentina’s economy expanded 4.7 percent in September and 4 percent in August. It grew at least 5.1 percent in each of the previous four months.

“Growth has been weaker and that means less revenue,” Costa said. “If the trend continues in the following months, revenue won’t be able to match union’s demands. It could be a source of tension for provinces.”

Rearte, who is raising three children, says her family has struggled to pay rent and bills this year on her husband’s income from the police force.

“I hope we don’t have the same problem next year,” she said.

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