BUENOS AIRES (Reuters) - Argentina could shed some 40,000 jobs in its construction sector in coming months as high interest rates hurt financing and the government scales back projects to cut its budget deficit, according to industry executives and union leaders.

With the central bank holding interest rates at a punishing 60 percent in an effort to curb high inflation and halt a slide in the peso currency, construction executives said there was no credit available to finance public works promised by President Mauricio Macri’s government.

“Banks are withdrawing financing from public works companies. It’s concern over the fiscal adjustment that will hit public works,” according to Chamber of Construction President Gustavo Weiss.

The government announced a raft of austerity measures this week as it seeks to slash the deficit and restore confidence in the peso, which has lost 52 percent of its value so far this year.

The government will slash spending and raise taxes in a bid to balance its primary budget next year - before debt servicing is taking into account - versus a previous target of a deficit of 1.3 percent of gross domestic product.

The tough new measures came as Macri seeks to convince the International Monetary Fund to accelerate disbursement of loans under a $50 billion financing deal reached in June, amid some investors’ concerns that Argentina may not be able to service its dollar debts next year.

Weiss said that high interest rates and the weakness of the peso were making it very difficult for local companies to get financing for projects or to buy imported materials.

“It’s possible that there will be 40,000 layoffs or even more because of cuts to public work,” Weiss said, saying that the estimate was based on consultations with member companies.

That would account for around 10 percent of the roughly 400,000 workers formally employed in construction, according to the chamber’s IERIC statistics agency, not including informal labor.

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A sharp slowdown in Argentina’s construction sector, already reeling from a major corruption scandal, would deal a heavy blow to an economy due to enter recession this quarter. It could also increase political pressure on Macri, who is expected to run for reelection next year.

A spokesman for the Labor Ministry downplayed what he said was a seasonal decline in the employment in the sector.

“There has been a slowdown in growth, and a slight monthly decline in jobs due to the winter season and some instability in the industry,” the spokesman said.

SCANDAL-HIT SECTOR

The corruption scandal that broke in August, involving allegations that officials from the previous administration took bribes from construction firms in return for public contracts, has impacted investment in the sector, government officials have said.

One senior banking executive, who asked to remain anonymous because of the sensitivity of the case, said banks were now carefully analyzing construction financing on a case-by-case basis to avoid working with companies involved in the scandal.

According to a central bank poll of economists published on Tuesday, Latin America’s third-largest economy is expected to contract 1.9 percent this year.

An official at Argentina’s Construction Workers Union, who asked not to be identified, said the austerity program could reduce public works by 50 percent next year, based on feedback from companies in talks with the government.

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The details of the 2019 budget will be presented to Congress this month.

The official said the union, the sector’s largest, also estimated after consultations with businesses that there could be as many as 60,000 worker layoffs over the next six months as expectations for next year decline.

“If this crisis doesn’t ease, it could be many more,” he said.

A spokeswoman for the Transport Ministry, which manages public works, said projects already underway as part of a Federal Roads Plan would go ahead, when asked about reductions next year.

She also said that public-private partnerships (PPP) initiated by Macri’s government for more than 3,000 km of road construction would start in October and November.

Argentina awarded six road projects to different consortia under its first wave of PPP in June, including China Construction America, a unit of China State Construction Engineering Corp 601668.SS.

Macri has bet heavily on PPP to jumpstart building projects, generate jobs and boost the economy.

The president of one construction company, who asked to remain anonymous because of concerns over repercussions for his business, said a government decision to stall construction forced him to recently fire 200 workers, around 1/10th of his staff.

“Suddenly, the government runs out of money, starts delaying payments and slowing down projects,” he said.

A spokesperson for the Transport Ministry said that some works could be being slowed by winter weather, difficulties in purchasing materials, legal difficulties or the processing of some modifications in the works themselves.