Alarmed by inflation in March (4.8%), the Government dumped another battery of controls and restrictions, which reinforces a strategy aimed at avoiding a new price escalation. The new regulations, the official statement detailed, establishes, among other things, greater demands to export meat and freezing of prices for a wide range of industrial inputs to produce and basic consumer items (fruits, chickens) and comfort (cell phones, TV and computers).
With different levels of intensity, the range of state control is so wide that it covers almost all areas. “Doing business is much more difficult and the impact on investment is gigantic,” interprets Andrés Borenstein, an economist at the Econviews consultancy. For some, it is the overloaded logic of former Secretary of Commerce Guillermo Moreno. Situation aggravated by the pandemic, which also prevents layoffs, evictions and even free movement. Others, like the director of Analytica, Ricardo Delgado, compare it with the models of the postwar period, the first years of Peronism and the Liberator. “The reason for everything is that we have an economy without dollars, and when that happens you have price problems ”, he describes.
Added to the lack of foreign currency is the monetary issue, promoted precisely during last year’s extensive quarantine: “Aid and assistance for COVID (IFE and ATP, among others) represented 3% of GDP”, Stressed the economist.
“It is not possible to indicate when the greatest restrictions have been applied, the reality is that it depends on the sector”, relativizes Soledad Pérez Duhalde, from Abeceb. However, the specialist highlights that the mass consumption segment, “is at its worst and with much stricter regulation to the one in force during the 2013-2019 period, ”he said.
Last week’s announcements increase the levels of official controls in two ways: price caps and demands on manufacturers to produce at their maximum capacity. “Controlling prices (Maximum Prices, Cared Prices) and quantities (not selling dollars, for example) is a very rare combination to find”, Says Guido Lorenzo, from the LCG consultancy. In his view, the shortage of foreign exchange and the issuance of pesos generate a picture of such complexity and of very difficult output.
The economy entered an Excel spreadsheet logic, of rigors applied to prices and also to production levels. Due to lack of profitability, the manufacturers argue, articles and brands are discontinued, which is reflected in the gondolas of supermarkets and shop windows. To avoid this, Comercio Interior, led by Paula Español, already imputed 1,000 signatures which he accused of an “unjustified reduction” in the activity of its plants and of shorting the market.
The list includes the main suppliers of mass products, including Mastellone, Fargo, AGD, Danone, Molinos Cañuelas, Bunge, Molinos Río de la Plata, Unilever, P&G and Paladini. In a harsh statement, AmCham, the entity that groups together large companies, mostly multinationals, questioned the double lock on prices and production, and asked to avoid “one last leap into the void.” AmCham acknowledged the shortage of some products but emphasized that companies have very little responsibility: “The lack of provision of goods at the point of sale is the consequence of multiple factors.” The consulting firm Scanntech provides a key piece of information: “In 2020, the inflation of the products reached by Maximum Prices was 14% against an inflation of 36.2%”.
The results are in sight, explains Bour, because as the major restrictions “do not reach the objectives, requires applying new repressive mechanisms and corrections“, Whose distortions” in many cases punish low-income people, who live in places where controls do not reach. ” The explanation is simple: Care Prices and Maximum Prices, for example, are basically applied in large chains, which account for only 34% of mass consumption, the rest is distributed by supermarkets, warehouses and neighborhood shops.
From the historical perspective, Bour points out that in Argentina there were other periods of generalized controls and that the exchange rate gap is not an originality of this time. “During the Second World War, in the first Peronism, the gap was 20%, it rose to 100% in 1948 and in the early 1950s it climbed to 300%,” he lists. “The correction process lasted 10 years”, He clarifies.
For companies, the current context represents a labyrinth for their normal operation, and they say that this complicates both investment plans and job creation. “It is very difficult to invest in a country where you cannot go out“Says Borenstein, adding:” In addition, the tax pressure on mid-sized companies up is very high, even for emerging markets. “
Escaping the confinement, connoisseurs agree, is not an easy task. “Issuance last year represented 8% of GDP and poverty rose the same. Dollars are missing and pesos are left over, and the logical path is to reduce the deficit little by little. Today all markets are distorted by the monetary variable, there are no prices, but not all controls can be removed at once, because the damage could be much worse ”, analyzes the economist Gabriel Zelpo.
Going forward, Lorenzo completes, “we have to untangle this great tangle of controls, because these kinds of plans were never successful”. This economist agrees that it cannot be resolved overnight either, but advises “some transitory scheme that unlocks the corset, so as to gradually reduce the deficit, spending and issuance.”
Lorenzo also believes that disassembling this scenario is very complicatedAnd that this is the result of the shortage of dollars and the surplus of pesos in an economy going through the recession, the lack of genuine financing and the issuance of pesos. “The balance of the Central Bank reflects all that. In 2020, between assets and liabilities, the entity lost around US $ 13,000 million in assets, “says the specialist.
And he warns that “the picture could get even worse if solutions are postponed.” “Companies today, between the demands to produce and the obstacles to import inputs, are being pulled from all sides. The bigger the company, the worse ”, graphs Bour. The economist maintains that, faced with this picture, “companies find it convenient to be smaller and less and less relevant in the consumer basket. Because the smaller and the less relevant you are, you have less trouble adapting”. Especially in a globalized world, where it is the same to produce in Argentina as in Vietnam.
Tougher restrictions, poorer results
“Prices Care”, one of the official programs that try to contain the cost of living.
Historians and economists believe that the number of price caps and barriers to foreign trade have little precedent in the country. “The reality is that the relative harshness of the controls that are currently applied depend on the sector under consideration,” remarks Soledad Pérez Duhalde, chief economist of the Abeceb consultancy.
A report prepared by that consultancy exclusively for the Economic, distinguishes the following things in the last 20 years. “In mass consumption,” he emphasizes, “it is its worst moment.” If we only consider retail, It is in one of the times of the most rigorous controls”, Point out its authors.
To the expansion of the programs Care Prices and Maximum Prices “The Gondolas Law is added, which regulates various aspects of the activity of supermarkets, for example the supply and order of products,” says Pérez Duhalde. “To find such strict price control stages – he adds – we must refer to the time of Guillermo Moreno, although with the difference that there is currently a formal control scheme and in those years it was not whitewashed, “he says.
According to Abeceb, regarding public services, “the old policy returns”. The rates for “electricity and gas continue (for residential and SMEs), frozen since the beginning of 2019. Although it currently seems that the freeze would be temporary (increases, albeit much smaller, are being discussed for May), the truth is that the adjustments have been postponed ”.
Regarding external financing, the consulting firm identified similar results. “The exchange rate that prevents access to foreign currency to pay dividends (key to attract investment in sectors such as oil and mining), is currently one of the most important constraints for foreign investment”. Pérez Duhalde clarifies that “recently some exemptions have been implemented for new export projects or for the repayment of investments.”
Exporters face a lighter outlook, says the study, which was conducted hours before Thursday’s announcement last week. Among other novelties, the Government established new restrictions on meat exports, such as the creation of a new registry where sales abroad must be recorded to control prices and guarantee supply.
International trade specialist Marcelo Elizondo maintains that “in Argentina we have a problem with companies. We over-regulate them to subdue them and that conditions their operation. And it affects competitiveness ”, with a view to global markets. And also, says Elizondo, overregulation implies distrust of companies and entrepreneurs. On this point, the expert emphasizes that “there is a contradiction between distrusting companies and encouraging oligopolies, for example, preferring a closed economy or with distortions to internal competition ”, he says.
Such aspects make it difficult for dollars to enter the country, one of the scarcest goods in the economy, and which complicates access to inputs and intermediate goods to produce. “Argentina is, according to the World Bank, the second country in the world in tax burden on companies. And it is one of the two countries in the world that most affects exporters with taxes in relation to total tax collection, ”Elizondo laments.
The expert lists that there are four conditions that qualify the tax regulatory framework: its economic intensity, its complexity, its stability and its political effect (the incentives to encourage or discourage other activities on which companies make decisions). “Argentina is bad in the four aforementioned planes,” says the specialist.
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