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October 23, 2014
Monday, March 10, 2014

Even the easy part is hard

Economic issues have not been lacking this year with the fight against inflation still very much uppermost but the future of the auto industry (a labour-intensive activity which co-starred with soy in Argentina’s success story until not too many months ago) has risen to the fore. Especially since at least some of its problems may be reversible. Brazil’s slowdown as a major factor in faltering output and sales is entirely beyond the government’s control but the Cristina Fernández de Kirchner administration is also starting to ask itself whether self-inflicted wounds in the form of the luxury car excise rushed through Congress late last year might not be part of the problem. In terms of its original objectives, this levy was largely successful, something which seems to be forgotten with the subsequent problems. If the prime culprit for the loss of almost 12 billion dollars in Central Bank reserves last year was foreign travel, the import of upmarket cars as a hedge against inflation was also a major factor and the new excise seems to have been a total success in plugging that leak — so much so that it has yielded almost no revenue (which was never the real aim, it is also forgotten). But instead of merely affecting a tiny percentage of the most expensive imported cars, prices have soared all down the line. The government is still not convinced that the tax is the sole explanation but its removal (at almost zero cost to the Treasury) might help to clarify the panorama — although it could also lead to a return of the import excesses.

Regardless of whether the problem is Brazil or the tax, the auto industry is clearly hurting — the 8.5 percent fall in car sales last month clearly confirms the trend. The importance of this industry is not only the thousands of workers directly employed by assembly lines around the country — the various ancillary industries account for many more jobs. This diversity of activity also makes for an interdependence which creates vulnerability — if any car parts are blocked at any stage by dislocated relative prices or by strikes in an increasingly uncertain labour climate with a wage-price race brewing, then the whole assembly is jeopardized.

If last year the excise on luxury cars seemed by far the easiest and most painless step against the currency crisis (clearing Congress smoothly enough), just imagine how many unexpected traumas other tougher moves might create.

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