Argentina, one of the richest countries in the world during the first 50 years of the twentieth century, is facing another economic crisis. The Peronist government is using Covid-19 to keep the country in one of the world’s longest and detrimental lockdowns. It is expanding state control over the price of more than 2,000 consumer goods, with plans to impose prices freezes on TVs, mobile phones, the internet, and telecommunications in general by end of the year. “As we face the restrictions the pandemic imposes on us, ”Argentinian president Alberto Fernandez said, “nobody should have to give up part of their income to cover price hikes on those services”. The government has decreed “mobile and fixed telephony, internet services and pay-TV as essential public services.”
But an economic freeze makes things worse for both consumers and foreign investors. Argentina needs courageous free-market reforms now more than ever and a different set of liberalizations to re-open the economy to the region and global markets.
The current government, which supports leftist ideology and economic nationalism, is instead moving backward. Socialist measures such as containing prices during high inflation periods are not strategies unheard of by past Argentinian governments. Former center-right president Mauricio Macri froze the price, in August 2019, of oil products for 90 days with the hope of stopping the high annual inflation of 55% to get him possibly reelected for a second term but lost.
Argentina has one of the most unionized economies not only in South America but also in the world. All economic and productive sectors are under the control of unions that blackmail governments, preventing them from implementing economic reforms. Since Argentina’s return to democracy in 1983, free-market reforms, accountability, low taxation, and de-regulation are precisely the reforms needed.
According to Agustín Etchebarne, president of Libertad Y Progreso, an influential free-market think tank based in Buenos Aires “Argentina is in the midst of the worst economic and social crisis since the return of democracy in 1983. We expect a W shape recovery meaning that next year we anticipate a double bottom alongside an acceleration in inflation.”
Economic indicators show a country running behind the most advanced economies of the world, including the G20. According to the World Economic Forum’s Global Competitiveness Report Argentina ranks 83 out of 141 while according to the Trade Barrier Index it ranks globally 71 out of 86 and regionally 14 out of 16. In terms of economic freedom, Argentina has experienced a strong decline from 2001 until 2015 mainly under the Kirchner presidencies (2003-2015). In fact, according to the Economic Freedom Index, Argentina ranks 149 out of 180. However, slight improvements have been experienced with Macri’s government that adopted moderate economic reforms that have increased investment and financial freedom in Argentina.
It is difficult to mark the exact origin of the economic and political decline in Argentina even though in 1914 the Argentinian GDP was higher than that of Germany and one of the richest countries in the region. Argentinians lost their faith in Juan Bautista Alberdi, the famous classic liberal Argentinian philosopher, decades ago with the advent of Peronism and the onset of dictatorial power which has led to a mix of socialism and unionization of the economy that is jeopardizing the country’s natural resources and rather creating corruption, clientelism, and the most hardcore crony capitalism.
With its high corporate income tax in the region at 30% against the regional average of 27,6 % “Argentina is one of the less attractive markets in Latin American” Jonas Torrico director of Asociación Argentina De Contribuyentes says “not only for national but also foreign corporations.” While the entire world is moving forward in reducing corporate taxes since 1980 Argentina is moving backward with no intention of implementing tax simplification and tax reduction, as seen with the USA in 2017 when the Trump administration reduced the corporate tax from 35% to 21% making the USA the most competitive economy in the world in 2018 according to the World Economic Forum.
Under this economic deficiency, the pandemic lockdown, and anti-market measures, Argentina will face another tough round of negotiations with the IMF with the hope to replace a $57 billion lending deal from 2018. “Having no room for half-baked solutions Argentina will have to choose between a huge reform or become another failed country such as Venezuela.” Etchebarne says, “I’m confident that we will choose wisely.”
Argentina needs to defrost the economy and make it reliable by cutting spending and implementing an outstanding package of economic reforms to make the country competitive again.