December 8, 2013
Thoughts for Industry Day
Industry Day today does not seem to find most manufacturers in a celebratory mood despite the “won decade” (more genuinely positive for them than for most sectors) and a previous quarter with sturdy growth according to all sources. If the focus is currently on the foreign debt issue as deepening Argentina’s isolation in the world, the contribution made to that isolation by relentless protectionism on behalf of local manufacturers should not be underestimated. If almost everybody today bemoans inflation, industry should bear in mind that one reason for expanding money supply by up to 40 percent annually was to keep the domestic consumer market moving. No doubt President Cristina Fernández de Kirchner will be reminding industry of these and other benefits in her speech to mark their day today so what grievances would manufacturers bring to her ear if they were to be granted the chance to give her a reality bite?
Paradoxically enough, the productive sector is probably more alarmed by exchange rate disarray than the financial sector. The currency curbs have proved counterproductive in freeing the economy from dollarization — while slowing capital flight, they have also sent foreign currency reserves on a downward spiral while broadening the gap between the various exchange rates (dollar and peso, official and parallel). Nor is the North American currency the only cause for anxious looks abroad — Brazil’s slowdown in general and its retreat from a floating exchange rate in particular threaten such key exports as cars and farm produce, while adding to the competitive problems already caused by the dollar exchange rate. Inflation may be the result of a number of sectors dominated or monopolised by big players and a deliberate policy of pumping money into the local consumer market but the price has become too high. After a long period of virtually forcing people to spend because it made so much more sense than to save, there are signs of inflation actually affecting the domestic market negatively — not only the consumption of luxuries but also the most basic family shopping-basket goods is falling.
Yet rather than the “model” straying off course, it could be flawed as such. Import substitution was the aim of the first Peronist government and incredibly enough, it actually managed to increase imports (to equip industry and replace the shortages from discouraged export production) — now today’s surging fuel purchases abroad mean that import curbs threaten the entry of industrial inputs. Industry Day today finds manufacturers mingling cause for concern with reasons for gratitude.