Argentina looks better from abroad

Ámbito Financiero – It is common to hear or read in the media that the government is angry with local businessmen because they do not invest more. After each trip abroad, President Macri tends to comment that “those abroad” perceive more optimism than “those from here”. This should not be surprising. Both businessmen from abroad and locals welcome the change of direction that Cambiemos administration has made. However, those who have their businesses operating in Argentina continue to suffer every day a tax pressure that is ranked among the highest in the world, an absurd web of kafkian regulations that involve a huge cost in time and money, the harassment of an endemic state corruption, an archaic and litigious labor and union legislation that makes taking workers more expensive, high inflation and historical unpredictability of the rules of the game. Potential local or foreign investors who have not placed their capital in the country do not have to survive all these difficulties and, therefore, can more optimistically evaluate the change of course.

All the setbacks faced by businessmen, to a greater or lesser extent, could have eased during President Macri’s tenure; but, in the best of cases, they were done very gradually. Therefore, the claim of the non-arrival of the investment boom does not make sense. The logical thing is that investors are betting on the country to the same extent that it is resolving the heritage of Kirchnerism and years of populism. So it is natural that the gradualism in the economic and institutional solutions corresponds to the gradualism in the increase of the investment, which in fact has been growing and did it in 2017 in around 10%.

Finally, Minister Francisco Cabrera complained about industrialists who “mourn” (because of the increase in imports) instead of investing to be competitive. He accused them of trying to continue behaving as with the previous government, asking for protection in order to be able to be more expensive for Argentinians and increase their profits without any effort. The minister is right, in part. Unfortunately, these prebendary sectors have subsisted and intend to continue doing so based on a strong lobby. However, it is also true that the vast majority of them continue to behave as in the previous ultra-protective administration because the current one did not substantially change the rules of the game. If the Government wants a change of attitude of these buisnessmen, it must open the economy and force them to compete. That will force them to make an effort and invest or lose money. It is not fair that we Argentinians fill their pockets at the expense of our economic well-being.

Obviously, these “entrepreneurs” will argue that jobs will be lost, a half-truth. The fact that a sector is protected decreases the demand for foreign currency to import; so it cheapens the exchange rate. In this way, both the sectors that compete with imported products that did not obtain the same privilege and those that produce goods that can be exported will see their sales fall because they are less competitive. More jobs and production will be lost in more efficient sectors, that can generate more wealth for society, to protect the profits of entrepreneurs who want to obtain them without effort. A company can not be more efficient prioritizing producing where it is not. A country either; so protectionism condemns us to generate lower levels of wealth, welfare and higher rates of poverty.

Written by Aldo Abram
Economist and director of “Libertad y Progreso”