With a trade volume of just over 30 percent of its economy, Argentina already ranks among the seven most- closed economies in the world – shutting it down yet further does not look like the way ahead.
One central paradox of this coronavirus pandemic is that although a universal response seems more imperative than ever – along the lines of any chain only being as strong as its weakest link with no country safe, while Covid-19 lurks anywhere on the planet (least of all in a globalised world) – the immediate reflex of most countries rich and poor has been to push nationalism to new extremes by shutting down externally as well as internally. Argentina has just made a small contribution to this unfortunate trend by pulling out of all Mercosur free-trade negotiations with the outside world, save the European Union – to which might be added the globally unique decision to suspend all airfare sales until September.
Both these decisions have a common origin – a protectionist allergy to any competition on the part of vested interests. Given that aviation will be denied any income for the next four months at least, it is pretty safe to assume that state airline Aerolíneas Argentinas (uniquely bolstered by government subsidies during this period) will regain the monopoly it enjoyed before the low-cost revolution of the Mauricio Macri presidency. But the main subject of this editorial is the Mercosur. The government insists that it is not leaving the regional bloc, but to quit the negotiations is to leave the trade bloc effectively, demoting it from a customs union with a common barrier towards the outside world to a free-trade area and thus denying Argentina the very protection sought at the regional level. Given the extreme uncertainty with the pandemic worldwide and Argentina’s own “inherited” foreign debt problem, it was argued, now is not the time to accelerate free-trade agreements which might jeopardise Argentine industry and jobs.
Job anxieties are understandable in any country and even more so in Argentina’s case. As analysts frequently point out, there are only six million employees in the private sector to pay the taxes to fund almost 20 million cheques for state workers (national, provincial and municipal), pensioners and social welfare recipients, an acute imbalance which seems to dictate the conclusion that each one of those private-sector jobs must be protected at all costs. Yet while those six million jobs include the country’s most dynamic sectors, they also house heavily unionised labour in protected dead-end industries with extremely low productivity.
Evidently, the Frente de Todos administration favours a typically Peronist model of consumer-led growth, from a labour-intensive industry in a protected domestic market, to export-led growth playing to Argentina’s agricultural strengths – from this standpoint free-trade agreements are bad news if, say, South Korea is seen as an electronics powerhouse threatening Tierra del Fuego assembly plants rather than as a promising food market. But the latter (also including a post-Brexit Britain) seems the best bet for post-lockdown Argentina, safer at any rate than Vaca Muerta shale with the multiple blows suffered by its potential of late – if the pandemic seems a bad time for negotiations, it is also highly necessary to plan beyond. And then, if industrial protection is the name of the game, then it should be borne in mind that 60 percent of Argentine exports to Mercosur (mainly Brazil, on which the auto industry depends so heavily) are manufactured products as opposed to an average of 25 percent worldwide – in this sense undermining Mercosur is self-defeating. With a trade volume of just over 30 percent of its economy, Argentina already ranks among the seven most-closed economies in the world – shutting it down yet further does not look like the way ahead.
What the Foreign Ministry is proposing is a direct violation of the Ouro Preto protocol (1994) obliging Mercosur members to negotiate as a bloc – but the fact that other members, especially Uruguay, have strayed from collective negotiations in the past does not make it the wisest move for Argentina now. Argentina can achieve more within than outside the negotiations where it enjoys a veto power it now proposes to forfeit. It’s clear that this estrangement from Mercosur is highly conditioned by the sour relationship with Brazil’s increasingly insufferable president, Jair Bolsonaro, but this only plays Brazil’s game – an isolated Argentina could lose investments not only to Brazil (a gigantic market in its own right) but even to smaller countries whose free-trade agreements offer access to bigger markets.
Temporary lockdowns against the coronavirus pandemic might be highly necessary but permanent shutdowns of international trade would be another story.