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Argentina's Bloated Public Payroll a Thorn in Macri's Side

Argentina's president-elect Mauricio Macri smiles during a news conference in Buenos Aires, Argentina, Nov. 23, 2015.

Roberto Sanchez faced death threats, tire-burning protesters and a siege of his town hall last month after taking power as mayor in a backwater town in northern Argentina and vowing to reduce the bloated public sector work force.

Voted in on a ticket for the center-right "Let's Change" alliance of President-elect Mauricio Macri, Sanchez opened the books to discover the ruling Peronist party mayor he replaced had dished out hundreds of jobs and inflated the wage bill.

In the six months running up to the August election in Concepcion, a town of 65,000 people surrounded by potato and sugarcane fields, and even after the vote, the public sector permanent staff payroll rocketed to over 1,000 from around 650.

When Sanchez announced a review, unruly street protests erupted, forcing the 49-year-old-mayor to barricade himself inside his town hall overnight. His wife rang him up crying as a group of protesters arrived at their family home, where she was trapped with their three children.

"They threw giant firecrackers and burnt big truck wheels in the door of the town hall," said Sanchez. "We couldn't leave the building, we only managed to escape at 3 p.m. the next day."

Forced to compromise, Sanchez agreed to keep 110 of the new hires.

The episode underscores the challenges Macri could face nationwide as he seeks to lower public spending in order to tame the fiscal deficit.

Argentinians are used to generous state jobs and benefits and efforts to cut back could bring workers onto the streets.

Macri, who takes office on Thursday, does not have a majority in Congress. His position is yet more difficult because he does not belong to Peronism, a populist movement founded on the defense of workers' rights that has at different times spanned from communist left to neoliberal right and has dominated Argentine politics for 70 years.

Peronism is fragmented but many Argentinians who in the same breath voice support and disdain for it have tended to turn to it in times of political and economic turmoil.

Opposition candidate Mauricio Macri celebrates after winning a runoff presidential election in Buenos Aires, Argentina, Sunday, Nov. 22, 2015.
Opposition candidate Mauricio Macri celebrates after winning a runoff presidential election in Buenos Aires, Argentina, Sunday, Nov. 22, 2015.

Macri will be only the third non-Peronist leader since the end of a military dictatorship in 1983. The other two were unable to finish their terms, a reminder of the problems that Peronist labor unions, state governors and opponents in Congress could cause if Macri fails to get the economy growing quickly.

Macri replaces outgoing President Cristina Fernandez, whose leftist policies included boosting the internal market by providing jobs, expanding the social welfare system and protecting local industry from foreign competition.

The scion of a wealthy family and a former president of the Boca Juniors soccer club, Macri promises to reduce the state's role in Latin America's third biggest economy and open it up to investors.

Argentina's fiscal deficit has ballooned to around 6-8 percent of gross domestic product, with public sector employment growing by about 50 percent since Fernandez took power in 2007, private economists say.

Fernandez's supporters say the jobs were needed to staff new hospitals and schools and show the return of the state after it was slashed by neoliberal policies in the 1990s.

Critics say public sector employment growth has far outpaced gains in the private sector and allege many jobs were created to mask unemployment.

Public sector jobs will make up 29 percent of employment by the end of 2015, compared with 21 percent in 2007, according to the economic consultancy Orlando J. Ferreres & Associates.

Officials in Macri's government say jobs were also handed out as political favors.

"Even in the last few days, they've been hiring permanent staff," said a source in the incoming government familiar with the details.

Rooting out "gnocchis"

Macri, who will have to cut energy and transport subsidies to narrow the budget deficit, has created a modernization ministry tasked with improving public sector productivity.

One task will be to root out "gnocchis," the name given to employees who rarely turn up at work except at the end of the month to receive their paycheck. The nickname stems from the Argentine custom of eating gnocchi, Italian dumplings, on the 29th of each month.

"Anyone who doesn't work shouldn't be in state employment," said Andres Ibarra, the designated modernization minister.

In Concepcion, undaunted by the protests and threats, Sanchez is already seeking out such bureaucratic freeloaders.

"People used to punch in at 8 a.m., then go home, and then come back at 12:30 p.m. to punch out," Sanchez said. "Now we are checking where each person works, what kind of work they do."

The jobless rate in Argentina - defined by the number of people actively looking for a job - fell to 5.9 percent in the third quarter of 2015, its lowest level in nearly three decades.

Streamlining the public sector won't be easy.

Axing tens of thousands of jobs could be politically toxic for a government that many poorer Argentinians already worry will put private sector interests before the needs of workers.

Argentina's mighty trade unions have already threatened protests against any job cuts.

Hugo Godoy, who heads the ATE union representing public sector workers, last week led a rally demanding the incoming government renew 95,000 public contracts that expire this month.

"They will find us standing and ready to fight," Godoy said.

Orlando Ferreres, a private economist who has been broadly critical of Fernandez's economic policies, said Macri may need to take a longer-term approach and wait for investment-led economic growth to take hold.

"If salaries are higher in the private sector, people will move across," he said.

More than 2.5 million Argentinians are employed by regional governments, where growth in public sector jobs has been most explosive, according to the FIEL think-tank.

"We will try to help the provinces to get their payrolls in order. But we will see whether or not they take our advice," the source with the incoming government said.

Macri may have some leverage. Provincial administrations raise revenue with taxes but rely also on a supplementary budget provided by the federal government. Presidents traditionally use that as a bargaining chip in policy talks with governors.

Even so, Macri will need to kick-start the economy and generate more jobs with competitive salaries.

"Fernandez liked distributing the pie but she didn't focus on making it," said Sanchez, the new mayor of Concepcion.