The Economy, Increasingly Regulated

Photo Manuel Solanet
Manuel Solanet

The intervention of the national state increased in recent months. Some measures are understandable, in this unprecedented period, but economists warn about the long-term damage.

Argentina is increasingly regulated. The quarantine imposed by the Covid-19 pandemic has functioned as an ideal scenario to accentuate some of the pre-existing regulations in the country or to create different ones. There are exceptional situations, but, seen in perspective, they do not cease to surprise: by case, You can only go for a walk in the open air every other day, according to the ID number; It is not possible to travel through the province if you do not have an exceptional reason, and it is forbidden to receive a friend at home. However, there are other much more profound regulations that affect the economic life of the country, about which a gigantic suspicion weighs: they won’t go away when the virus passes.

The most recent and surprising is the one that declared communication technologies essential public service, in which there will no longer be a price for the services provided, within the framework of certain competition, but rather a rate regulated by the State. Yes, in the last 10 years The sector invested 10 billion dollars and has not yet finished 5G and 37 percent of households do not have fixed internet, can we continue to advance? In a highly capital intensive industry, who will put in the dollars it takes to at least guarantee that what is working is what the economist Alieto Guadagni asks himself. “The big question is whether after regulation risk investments will increase or not, because if they do not increase, the country will not grow,” he said. “It makes no sense to put regulations that prevent the assumption of business risks with good productive investments, because, if there are none, it is a passport to poverty”, remarked Guadagni.

The interventionist list of the national State is extensive and varied. At supermarkets there is a basket of maximum prices in which increases are authorized on a discretionary basis and fines are imposed if there is no provision. The minimum fixed-term interest rate also has its norm, among so many additional ones that have surrounded the banking system.For example, withdrawals from ATMs from a non-proprietary network, which had a charge, today are free (somewhere else they are charged) until December 31, and in In September, for the second time, banks will have to refinance card balances in up to 12 months at 40 percent per annum.

The UVA adjustment of loans was also frozen for six months and is likely to be extended. Rents released a regulatory law during the pandemic. In reality, this segment faced a double intervention: decree 320/20, which postponed increases for six months and prevented the eviction during the quarantine, which expires in September and would be extended, and a law that took the contract term for residential units from two to three years and provided an annual increase based on a formula that everyone presumes will be more higher than the one that had been applied. The consequence, according to the real estate chambers, is that the rental offer will be lower and more expensive. With another cons: it causes a great disincentive to those who build to rent, a key driver in the province.

With the historical lack of dollars that affects Argentina, imports always had their ups and downs. The current one is very restrictive: there are about 46 companies that will go to court because they cannot obtain import licenses. And to encourage the manufacture of national notebooks, a zero tariff will be placed on the import of parts (90 percent are imported) and 20 percent will be charged to those that enter finished. Public service rates are a naturally regulated sector, given In any case, the account is simple: the investments that guarantee or extend the service are paid with a tariff or are assumed by the State. To that, pending this 2020, other questions have been added: no the rate can be increased (even with higher proven costs); The service cannot be cut due to non-payment, and residential and businesses can owe up to six bills between March and December, which can be paid in 30 installments at 24 percent per year.

The default is around 35 percent in the case of Epec, 27 percent in Ecogas and 20 percent in Aguas Cordobesas, when it never exceeded four percent. Schools Private schools also have their regulation, although not provided by decree, but by a general agreement between the parties: they did not lower the “pure” fees, but they eliminated additional services; they did not apply increases and, above all, they cannot question the continuity of a student for lack of payment. The default today is around 60 percent.

The rigid labor market with a high tax burden is currently undergoing extreme regulation, which is the prohibition of firing. The company that decides to close, because it considers its business unviable, is obliged to reach an agreement for good with its employees . If not, he will have trials. Since December 13, prior to the pandemic, it was established by decree that, in case of dismissals, not one compensation must be faced, but two. But the most questioned is a regulation in the middle of the pandemic, with an unjustified haste and without listening to the multiple voices that objected. It is the regulation of telework, which imposed reversibility, that is, the option always open to the worker who accepts the home office to return to the office as soon as he requests it. “Regulating that in the middle of a process like this, where what is needed is flexibility and not rigidity, is complex, especially for the sectors of the knowledge economy, to which you have already stopped the software law and sent a new law that is stuck and that would allow a jump in productivity to compensate for the jobs that are going to be lost in sectors that are not dynamic”, says economist Marina Dal Poggetto.

More in depth There are two relevant questions looming over this process. The first has to do with the institutional mechanisms that provided these interventions. “The quarantine has given the Government a space, which has a vocation to regulate intensely and which is doing so through decrees of necessity and urgency, advancing on issues that they would have required a parliamentary discussion. We have seen it this week with the declaration of public services to technology and internet companies”, considers the economist Manuel Solanet, director of Public Policies of the Libertad y Progreso foundation.

“Kirchnerism has an ideological vocation due to the intervention of the State in the economy and in society. He would have done it anyway, but he is taking advantage of the quarantine circumstance to do it with greater speed and intensity”, he says. The second question is whether the new regulations are really effective, beyond the very short term. Convinced that there will be no investments with them, Guadagni assures that the decisions are serious because “they reveal a certain ignorance of the real functioning of the productive economy.” “This compromises the future and ultimately ends in more poverty. Taking out Venezuela, Argentina is the poorest country in Latin America; we have poorer than Chile, Colombia, Ecuador, Paraguay”, he says. And he wonders if these measures “help to get out of this setback that is unprecedented in the world.”

Solanet is on the same line. “I am not an absolute in this; where there are natural monopolies, regulation is imposed, but in other cases it threatens the efficiency of the system, generates poverty and corruption. Regulations have to be the exception and not the rule”, he remarks.

“It is difficult to promote growth with a fiscal impulse; That is why I insist a lot on giving incentives to private investment. The situation in Argentina is not one that invites investors, and this has to change”, says economist Eduardo Levy Yeyati. Idea: Businessmen’s Forum Criticism of the presidential special decree on public services. The Institute for Business Development of Argentina (Idea ) yesterday expressed concern about the decree signed by President Alberto Fernández on telecommunications. “Argentina needs clear rules and predictability to grow. The decision to declare cellular and fixed telephony, internet services and pay TV as public services, to freeze their prices and to subject them to greater regulation by the State is in line with this situation”, assured Idea The activities with the most intervention of the State Public services Freezing of rates, without cut and with 30 installments to pay up to six tickets. The delay in payment of services increased considerably.

Communications Declared public service, will be governed by rate and not by price. This avoids competition between different companies and investments will be restricted.

Gondolas Price control and fines on a list of basic products. Increases are authorized on a discretionary basis. Fines are imposed if there is no provision. Labor market Double severance pay, prohibition of dismissals and 100% payment to dismissed workers. There are companies that close because they consider it unfeasible to continue.

Real Estate Rentals are frozen for six months and eviction is prevented. A new law extended the term of contracts, added guarantees and established an annual increase formula. Banking system 33% minimum rate for fixed terms, free withdrawals from any bank and a freeze on updating credits for UVA.