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The next steps after the PASOs

Indirect taxation notoriously predominates in Argentina, transferred to prices and thus making the consumer the main victim. Not to mention tax evasion (by businessmen but also the informally employed).

Wednesday 4 October, 2017
Minister Juan José Aranguren.
Minister Juan José Aranguren. Foto:Cedoc.

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Last Sunday’s German elections might have reminded some people of World War II and North Korea might be threatening World War III but  nothing can take Argentina off the radar of Dr Hale, the New England economist who consults me incessantly. When pressed on that point, he explains:

“The German elections have become a focus for what your previous president Cristina Fernández de Kirchner would call “bad information.” The  term “neo-Nazi” is used very loosely but there’s nothing anti-Semitic about the Bundestag’s new guys and gals unless one recalls that most Arab  peoples are also Semitic – it’s Islam and immigration, stupid! (Plus the Teutonic counterparts of Brexit).

The advance of the far right has confused everybody and probably nobody more than the far right itself, judging from its leadership hassles. In  the US we talk about alt-right meaning new right but “alt” is the German word for “old.” Funny thing language, isn’t it? But I don’t want to sound like Noam Chomsky.

“I have my own particular theory about North Korea. Everybody seems to think that Kim Jong-un is a wrong ’un and that’s hard to dispute but I  see all this nuclear brinkmanship as an elaborate bid to distract attention from the fact that today’s North Korea is swarming with shopping  centres and mobile telephones. This evidently shames our Kim, whether because of the betrayal of primitive Communism or the slavish imitation of China (which now has 600 billionaires as against 550 in the US) is hard to tell, but I see his missile-rattling as ideological and nationalistic camouflage to hide North Korea groping its way into the real world.

“No, I’m staying with Argentina for the real drama. I’ve two questions for you, one based on the week’s news and the other looking beyond the headlines.

By the way, re: last week, thanks for that shortlist of Kirchnerite candidates for WEEP (the Website for Extreme Economic Positions). WEEP’s  members agree in principle that no global spectrum of extremism would be complete without Kirchnerism but the vulture funds (or “distressed asset funds,” as they like to call themselves) are strongly enough represented to hold veto rights so that’s going nowhere.

“My first question concerns the liberation of fuel prices announced last Monday, which will be kicking in this weekend already. Considering that  the Mauricio Macri administration started life by freeing the exchange rate, should I be concluding that despite all this “gradualism” talk Macri is a  ogmatic free marketeer after all, perhaps even a candidate for WEEP?”

My reply:

“No, this new price freedom will only reign for the rest of this year at best with the option of review in November. Might sound risky in an  electoral month but due to various factors (including North Korea), there is a new equilibrium for now between local and global prices making all  this possible. Previously domestic fuel prices had to be jacked up beyond depressed world levels to encourage investment but the current  operation of market laws make this no longer necessary. Just to remove any doubts, Energy Minister Juan José Aranguren accompanied his  announcement of the liberation with the warning: “If (prices) soar, we’d do something in the public interest.’

“Ditto for the exchange rate. A nominally free exchange rate is already a ‘dirty float,’ which the Central Bank would not hesitate to make  pornographic if politically required. Post-Brexit and pre-PASO interventions are proof of that approach in recent months. And such interventions  might well again be needed in the near future due to the dollar’s worldwide rise (a combination of various factors ranging from North Korea to  the Federal Reserve easing up interest rates in order to re-absorb all those billions lavished on quantitative easing as from 2008), which should not  be confused with depreciation in either Argentina or Latin America.

“I remain apprehensive about the quasi-fiscal deficit doing as much to feed as to control inflation (Macri’s Lebacs have so far cost half a trillion  pesos) but both you and the Central Bank would have a superior technical understanding to me and in any case this danger seems latent rather than imminent.” 

“I remain apprehensive about the quasi-fiscal deficit doing as much to feed as to control inflation (Macri’s Lebacs have so far cost half a trillion  pesos) but both you and the Central Bank would have a superior technical understanding to me and in any case this danger seems latent rather than imminent.” 

My reply:

“Full employment is the ideal of any goverment and in most of the world there is a direct correlation with growth – booms are seen as good for  jobs and depressions destructive. But in the Argentine experience productivity and efficiency are seen as enemies of employment – the more  labour-intensive and underskilled the sector (entirely typical of the Greater Buenos Aires belt), the better for jobs. Rather than lean and mean,  overmanned industries padding out trade union memberships became the Peronist paradigm but the obvious competitive shortcomings virtually dictate a protectionism stunting international trade.

“But the problems do not only lie on the labour side of industry – the syndrome of ‘poor companies and rich businessmen’ plagues management.  This, in turn, is not merely the product of private greed but perpetuated by a perverse tax structure.

“Around 70 percent of income taxation is corporate and 30 percent individual on high earners when it is more or less the other way around in  developed countries. Yet not only does taxation concentrate its fire on poor companies instead of rich individuals but it hits businesses the wrong  end – instead of profits (and far less the fruits of financial speculation), the main target is labour surcharges, which make an underskilled workforce even less competitive. But indirect taxation notoriously predominates in Argentina, transferred to prices and thus making the consumer the main victim. Not to mention tax evasion (by businessmen but also the informally employed).

“Your question as to the survival of labour structures deserves a longer answer but this is about as long as an email can be – I would just like to  point to textile production (a classic example of a low-skill, labour-intensive sector) having plunged by some 40 percent in the last couple of years and the ineffective resistance being mounted by the unions to the low-cost airlines (although Macri bows sufficiently to union pressure to keep  the air-fare floor around 60 percent above what it could be).

“You ask some complex questions, Dr Hale – just as well I’m not required to answer them via the 140 (or perhaps 280) characters of Twitter.”


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