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ECONOMY | 25-07-2023 17:57

Argentina's business establishment accuses Sergio Massa of 'distorting' markets

Argentina's most powerful corporate chambers have reported rising costs and warned about new price increases. They pointed out that the new taxes should have been passed by Congress.

Argentina’s business establishment has consolidated its reproaches to the so-called “plan llegar” which, according to accusations, Economy Minister Sergio Massa has implemented to campaign and keep the macroeconomic “distortions” at bay, so as to bridge between current difficulties and the primaries, general elections and a likely run-off. 

Despite maintaining a constant dialogue with the ruling party presidential hopeful, the most powerful corporate associations disapproved of the increase in tax pressure imposed by the government minister, by making imports and the incentives for certain sectors of the economy more expensive. Making warnings of unconstitutionality, they opened the door to bringing the measures to the courts.

The Argentine Industrial Union (UIA, in its Spanish acronym), also headed by the chairman of the Food Industry Chamber (Copal, in its Spanish acronym), Daniel Funes de Rioja, held that “the latest measures taken by the Government negatively affect production, by further limiting access to supplies needed for industry,” and he warned that “they will affect the activity, with a strong impact on SMEs, based on greater tax pressure on the production sector, higher costs and a loss of competitivity for exports." 

“It is essential to prevent the anti-export bias and price distortions generated by these schemes which randomly impact value chains,” the association commented.

Industrials, dialoguing with Economy officials every day over Foreign Trade permits, let their anger over the measures be known. Sources from UIA told Perfil that there is “considerable uncertainty” about the scope of the announcements. Among the arguments raised to justify the strong tone adopted by the entity, they complained about Massa’s “tactlessness.” Factories complain that the measures “are applicable to imports agreed upon previously thus generating retroactive costs with no foreign exchange hedging, which creates a break in the chain of payments of the affected sectors.”

 

 

Inflation fears

There is a warning that has sent an amber warning to the economy minister: the threats of transferring the new costs to prices. Industrials “do not know regulations yet to know the scope of the exception of the PAÍS Tax for supplies and intermediate goods linked directly to products in the basic food basket and for fuels, lubricants, goods related to energy generation”; nor “has it been contemplated to exempt everything within Fair Prices (Precios Justos), which will put added pressure on costs and prices." 

According to the UIA, “there is also the difficulty of exempting all raw materials, supplies and intermediate goods related to basic basket goods,"

According to business owners, the scenario is even worse. According to an internal report of the Argentine Chamber of Commerce and Services (CAC, in its Spanish acronym), the measures are “short-term” and “will not generate a sustained improvement” of Central Bank reserves. 

“It’s trying to get to the PASO primaries without a devaluation jump which further complicates the economic and social outlook of the country. The problem is that part of the measures applied will affect prices, adding to the rise in exchange rate from the financial market and the rise in the informal rate,” it said.

The chamber of commerce, chaired by Mario Grinman, quite plainly called the measures as the implementation of a “currency depreciation” and a “foreign exchange unfolding,” since it entails a“concealed or heterodox devaluation with the macroeconomic contraction consequences it implies, together with increased tax pressure which carries less competitivity to a private sector badly beaten in this country by heavy taxation." 

In addition, he warned that “they might expect the situation to get worse, which is why it needs to stock up and not stay outside the market over the next few weeks,” which would “make the problem of foreign currency in the Central Bank even worse." 

The CAC also claimed “joint and substantive measures to attempt to curb the escalating prices, generate credibility among authorities of this country and the peso as a foreign exchange and savings currency.”

 

Legal threat

The owners of large multinational companies doing business in Argentina, enrolled in the Argentine Corporate Association (AEA, in its Spanish acronym) accused the Government of once again increasing tax pressure, “with measures affecting the competitiveness of exports and generating retroactive costs on imports which have already been agreed upon." 

“This decision, which implies the discretionary creation of new taxes by omitting the participation of the Congress, causes great concern in the corporate world,” he claimed. With this warning, the business establishment opened the door to bringing the measures to court, as admitted by a corporate source.

The Corporate Convergence Forum (FCE, in its Spanish acronym) also warned that “the only authorised process to create new taxes is the discussion of the 2024 budget″ in Congress, and said that “the tax deficit generated by the increased public spending at all levels of the government, losses of state-run companies, subsidies to energy and transport and the financing of such debts by issuing currency, has led us to a very high inflation rate which is an additional tax, especially in the most vulnerable sectors.”

The entities of the farming sector also disapproved. The Argentine Corn and Sorghum Association (MAIZAR, in its Spanish acronym) asked for “an end to distortions,” criticising the differential rate at 340 pesos for some of the farming sector’s exports. With accusations of weakening the value added to the corn chain and technological development, businesspeople claimed that the measures curb “innovation, by generating problems for normal supply and deforming the corn export market and domestic industrialisation." 

“It also indicates a lack of clear rules and a comprehensive outlook of where we want to go as a country,” they complained.

The Argentine Feedlot Chamber, in turn, stated its “total disagreement” and warned “about the impacts of this measure on meat production and the producers who have been bearing not only the beating of over a year of adverse climate and macroeconomic problems, but also state intervention which affect meat demand and production costs." 

“We deeply regret that once again they are trying to fruitlessly patch up and damage the sector to solve the problem of macroeconomic management. It is striking and worrying that the current Economy minister and presidential candidate (Sergio T. Massa) doesn’t know the serious damage those measures currently cause and will cause in the near future to primary production,” the chamber stressed, through a press release.

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Ariel Maciel

Ariel Maciel

Editor de Economía Política en Perfil.com - Mail: [email protected]

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