Ten tips for the economy to grow at 5% per year

PERFIL – Libertad y Progreso foresees a lousy fourth quarter of 2020, but provides some guidelines on how to overcome the crisis and grow again.

The public policy research center Libertad y Progreso presented a report that analyzes the current situation and gives a series of tips to save the economy and grow at 5% per year. These proposals point to a “strong recovery of private investment within a framework of rules that promote competitiveness” and “the conjunctural closure of the fiscal gap”, which should reproduce “the way it was achieved between 2002 and 2004: macro-devaluation not accompanied by public wages, pensions and social plans. But unlike that policy, a structural program must be launched simultaneously that will lead Argentina to a growth of the order of 5% per year from 2021 ″, according to the entity in this work.

The paper foresees a high level of inflation for the last quarter of this year, «consequence of a macrodevaluation. The width of the exchange gap will induce a loss and depletion of reserves, despite successive measures of intervention and exchange control. It also forecasts the fall in demand for money, after stabilizing after quarantine. A high country risk, “despite the agreed restructuring of public debt.” A stagnation in the level of activity, with low public and private investment and difficulties in recovering from low levels as a result of compulsory social isolation. Primary fiscal deficit, between 4 and 5 points of GDP. And salary delay, retirement and social plans, with strong social demands.

Libertad y Progreso warns that «the program implemented will be decisive for an orderly solution and the recovery of confidence that sets in motion a positive process. Only with a strong recovery of private investment within a framework of rules that promote competitiveness will it be possible to overcome the crisis by transforming the vicious circle of poverty and fiscal imbalance into a virtuous circle that promotes sustained development and monetary stability » .
It also indicates that the formula to get the economy to recover passes through “the conjunctural closing of the fiscal gap” that “should reproduce the way it was achieved between 2002 and 2004: macro-devaluation not accompanied by public wages, pensions and social plans . But unlike that policy, a structural program must be launched simultaneously that will lead Argentina to a growth of the order of 5% per year from 2021, which will create four million productive private jobs in four years. This will absorb the million young people who will enter the labor market during this period, in addition to a million public employees, a million recipients of social plans and a million people who are today in the informal economy.
Among the keys to achieving the take-off of the economy, Libertad y Progreso gives a series of advice, which are the following:

1- Labor Reform:
Give priority to labor agreements at the company level over collective agreements at the activity sector level. This will require the representation of the company’s workers to be unified. Ensure freedom of association. Deregulate and simplify the administrative controls of the enforcement authority and the labor police. Modify through regulatory decree, Article 84 of the Labor Contract Law to increase productivity and reduce cost overruns and occupational risk. Reduce the cost and risk of dismissal, respecting the acquired rights, by suppressing the severance pay forward, compensating it for a fund and unemployment insurance. Take the example applied in Austria, known as the “Austrian backpack.

2-Reform of the National Administration:
Substantially reduce the number of employees of the National Administration and achieve greater effectiveness and efficiency in management, ensuring that no person loses income immediately and has the opportunity to reintegrate and progress. It includes: i) Changes in public sector labor regulations to incorporate results-based management. Continue digitization and improvements in computer technology. ii) A decree with a new structure (there is a proposed organizational chart) within the framework of the powers established in Law 25,164, on Public Employment. The administrative units dependent on each of the eight ministries will be defined, up to the level of national directorates, general directorates, and decentralized agencies. The decree will establish the staffing of each administrative unit, by category. iii) Appointment of the ministers of the new structure. On a temporary basis, for 90 days, the administrative units of the old structure are assigned to each of the new ministries. During this period, each new minister covers the positions of the new structure, giving priority to personnel on availability. Once the staff typecasting has been completed, those who have not been relocated to the new structure will remain in the condition of availability established by Law No. 25,164 Art 11 (They do not perform tasks; but they receive salaries for one or two years. avoid the social cost of being left without income.). iv) Incentives for companies that hire them: exemption from employer contributions for a period of two years and subsidy on training expenses in the new job. Early retirement to those, remaining in availability, who had not obtained employment in two years and are over 60 years of age.

3-Gradual reduction of social plans to those who least need it:
Seeking to encourage them to be employed, for example, by generalizing the «Plan Empalme». Elimination of funds assigned to the Popular Economy. International audit to review the excesses committed in the fraudulent allocation of disability benefits.

4-Reduction until the elimination of energy and transport subsidies:
Normalize tariffs and prices within a reasonable period of time, so that they cover costs plus a profit that encourages investment in the sector. The impact on the lower income strata must be selectively cushioned with demand subsidy instruments (Social Rate).

5-Raising the retirement age:
In a process that will begin equalizing women and men in 65 years announced to reach 70 years in a decade for both sexes. Mothers will be recognized the equivalent of one year for each child up to a maximum of 7 years.

6-Reform of the Federal Partnership:
Sending to Congress a Law for the return of tax powers to the provinces (Gains from individuals, Fuels, Personal Property, Internal). Replacement of Gross Revenue by Sales (they are provincial) and calibration of this with the aliquot of VAT (national) to match the current primary distribution. Suppression of vertical co-participation. Compatibility with current secondary distribution through a horizontal redistribution fund that produces a connection with the current system, but when these percentages are immovable, it must accompany any increase in the spending of a province, with additional provincial taxes. That way, incentives will be aligned and you will tend to spend less and better.

7-Gradual elimination of check tax and export duties:
As public spending decreases, but with a course established by law.

8-External opening:
Accompany Mercosur partners in the conclusion of free trade agreements. Agree in Mercosur on how to reduce the common external tariff.

9-Deregulation and regulatory simplification:
Particularly from the rules of the AFIP, the BCRA and other regulatory bodies. Retrace the interventionist norms (Eg. Rent Law). Facilitate the use of electronic money.

10-Strengthening and support of the currency:
After the level of the reserves is restored, which can be reinforced with a swap or a loan that can only be used as a backup, and when they reach the level of the monetary base at the prevailing free exchange rate, the peso-dollar convertibility will be established. Unlike the one that was implemented between 1992 and 2001, the depositary of the reserves assigned to convertibility and its management, will be an international financial institution (Ex: Bank of Adjustments of Basel)

Finally, Libertad y Progreso clarifies in its report that «measures 2 to 5 aim to achieve a genuine fiscal surplus that reduces the tax pressure and totally dissipates the presumption of a future default. This achievement, together with the rest of the measures, will constitute the axis of the program to regain confidence and investment, ensure stability and genuinely reduce interest rates and expand credit. These economic measures must be accompanied by the consolidation of an efficient and independent justice, for better security and for political stability. This will boost investment, competitiveness and the creation of private employment. The latter will make feasible the reduction of public employment and social subsidies. In this way, the current vicious circle of stagnation, deficit and inflation will become the virtuous circle of growth, employment, improvement in real wages and stability.