June 19, 2013
A surplus of deficits
President Cristina Fernández de Kirchner’s first nationwide broadcast of 2013 just before departing to Asia, which centred on railway modernization announcements and was perhaps most striking for bringing the i-word, inflation, out of limbo, also included advancing the 2012 trade figures as “mission accomplished” — a trade surplus of US$12.6 billion dollars surpassing a target of US$10-12 billion. Yet targets are not everything — if the saying that the end does not justify the means is as old as the Book of Genesis, in this case the means of protectionist import curbs have proved more economically destructive than the objective of a surplus beneficial. The trade surplus has expanded at the expense of trade volume — if the trade volume five years ago was almost 40 percent of Gross Domestic Product, this percentage has now shrunk to 30 (16 in exports plus 14 in imports). Moreover, within overall shrinkage the steady rise in fuel imports since 2006 (heading into 11 digits last year) has eroded the other imports too vital to be blocked outright, i.e. industrial inputs and capital goods. Exports have also dwindled, if less sharply — the eccentric policy of having to export the same value imported has not led to any new exports but to current exports being subcontracted to importing companies (often with no background in that sector).
This revival of import substitution policies (introduced in Argentina by necessity rather than choice when the Great Depression of the 1930s wiped out world trade) is anachronistic today because there is far more money to be made out of the “value chains” of globalized production than out of closing off a single national market to foreign competition — international investment is thus discouraged for reasons other than country risk. Protecting jobs in the least competitive and productive sectors of the economy also needs to be measured against the general economic stagnation last year sharply reducing job creation. Such protectionism results in shoddier goods at a higher price — a major factor in Argentina being the only Latin American country whose inflation accelerated last year, even if a money supply expansion of almost 40 percent is the main cause. Even the success of currency curbs against capital flight has boosted inflation because the previous outflow also took pesos massively out of circulation.
While it would be simplistic to blame everything on the import and currency curbs (since 60 percent of the trade volume decline since 2008 predated them), at the very least it should be time to start asking if the cure is not worse than the disease.