GOA PRICE CONTROLS STRATEGIES - EDUCATION AS EXEMPLAR

UNCLAS BUENOS AIRES 002191

SIPDIS

SIPDIS
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E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN
TREASURY FOR ALICE FAIBISHENKO
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
US SOUTHCOM FOR POLAD

E.O. 12958: N/A
TAGS: EFIN ECON ELAB ETRD ALOW AR
SUBJECT: GOA PRICE CONTROLS STRATEGIES - EDUCATION AS EXEMPLAR

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SUMMARY
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1. (SBU) Private school fees remain a politically sensitive
barometer in greater Buenos Aires and GoA efforts to "manage"
tuition expenses offer an instructive insight into the Kirchner
administration's approach to controlling inflation. Private school
tuition fees have already jumped 24 percent in 2006, reflecting
substantial GoA-authorized increases in teacher salaries. However,
the GoA has only authorized such increased fees through the end of
this calendar year and senior GoA officials are leaning hard on
school administrators to roll back these increases in 2007.
Additional GoA efforts to control education fees via cost-plus
pricing formulas and by mandatory public disclosure of school
expenses may well help depress headline inflation numbers through
planned October 2007 elections, but many here doubt the
sustainability of these GoA strategies. END SUMMARY

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CONSUMER PRICE INDEX
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2. (U) The Consumer Price Index (CPI) rose a monthly 0.6 percent in
August, in line with the central bank's (BCRA's) consensus forecast
and bringing 12-month inflation to 11 percent. Accumulated
inflation for the first eight months of 2006 totaled 6.1 percent, a
1.6 percentage-point drop from the same period in 2005. This
official CPI measures inflation only in the Greater Buenos Aires
urban area. According to the BCRA's consensus published in August,
CPI inflation is expected to be 0.8 percent in September, and 10.1
percent for the full year 2006.


3. (U) A 2.9 percent jump in education expenses was the single
largest contributor to the August CPI increase. Education prices
rose 20.2 percent over the first 8 months of the year, higher than
the full year 2005 increase of 17.5 percent. Education prices
include both school tuition fees and school supplies prices. There
are approximately 900 private schools in Buenos Aires city and 5600
in Buenos Aires Province.

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HOW TUITION FEES WERE INCREASED - AND CONTROLLED
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4. (U) School tuition fees rose 3.2 percent in August and 23.8
percent thus far in 2006. Regulations allow private schools to
boost tuition fees during an academic year (which runs from
approximately February to November) only if schools incorporate
increases in teachers' salaries required by law. Teachers' salaries
were increased March 2006, establishing a "floor" salary of ARP 840
(approximately USD 270) per month throughout the country. The
Government of Buenos Aires City set an additional 10.2 percent
salary increase in August 2006, benefiting approximately 37,000
local teachers. Teacher salaries represent 70 - 80 percent of
private school costs.


5. (U) The GOA authorized school tuition fee increases based on the
March 2006 authorized teacher salary increases - but only effective
June 2006 and only through December 2006. The GOA required that
schools charge this premium as a separate line item, a "compensation
for higher costs" (CHC) charge. The GoA's Secretariat of Domestic
Trade and the City of Buenos Aires government announced they would
jointly launch a website where private schools would have to detail
their individual cost structures, so that parents would be able to
monitor how schools calculated their CHC and challenge any "abusive"
behavior.

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RECENT NEGOTIATIONS
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6. (U) Secretary of Domestic Trade Guillermo Moreno met with private

schools representatives September 7 and asked that they drop the CHC
premium from their 2007 tuition fee schedule. Carlos Galli,
executive secretary of private school chamber COORDIEP, and Perpetuo
Lentijo, president of another school chamber ADEEPRA, later
commented to media that private schools have been subject to strong
GoA pressure to roll back tuition fees for the upcoming 2007 school
year. Secretary Moreno subsequently clarified that any future
school fee rises reflecting teacher salary increases would only be
authorized only under a CHC-like mechanism.

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COMMENT
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7. (SBU) With of 50% of Buenos Aires City students and 30% of
greater Buenos Aires Province students attending private schools,
tuition fees remain a politically sensitive barometer here. GoA
efforts to control school prices via temporary authorization of
cost-plus pricing formulas and public disclosure of school expenses
may well have a short term impact, but many here doubt the
sustainability of these measures. The Kirchner administration is
committed to keeping the "canasta basica" consumer price index under
control through planned October 2007 elections. This may become an
increasingly difficult challenge for the GoA: Citibank analysts
calculate that the July 2006 price index has been "suppressed" by a
full 17 percent due to the imposition of explicit or implicit GoA
price controls.


8. To see more Buenos Aires reporting, visit our classified website
at: http://www.state.sgov.gov/p/wha/buenosaires

MATERA