November 24, 2014
Sectors at odds
The basic division of socio-economic interests in Argentina has traditionally been defined as urban versus rural — export-led growth based on the pampas versus the consumer-led growth in major urban centres with the focus on import substitution industries — but this year’s economic trends seem to locate the dividing-line between the industrial and financial sectors. The general economic slowdown is often blamed on the sharply increased interest rates which were viewed as a life-belt during the summer’s post-devaluation run on the currency — there is no open clash as yet between the Economy Ministry and the Central Bank on this point but tension is latent. The productive sector fears that the cure could be worse than the disease with industrial short-time on the rise but monetarists are sure that any relaxation of interest rates would only transfer the pressure to prices and the dollar while public spending continues to rise unchecked. Both these perspectives have a point — which makes the way ahead especially difficult to see.
Cabinet Chief Jorge Capitanich informed us this week that “nobody will be talking about anything else except soccer in Argentina” until the World Cup ends in mid-July, now that the 30 players from which the Brazil-bound squad captained by Lionel Messi will be picked have been named, so presumably all the above problems and tensions will be left unresolved. Among the pending issues will be the income tax floor — by confirming the lack of any immediate plans for a change, the government has sent the message that the unavoidable austerity will go ahead but far more for the private than the public sector. And here the opposition places itself on the horns of a dilemma — the more it presses for poverty figures, condemning government evasiveness on this issue, the greater the need for social programmes if the economic deprivation is as serious as feared (and growing with the tendencies towards “stagflation”).
But rather than the total distraction expected by Capitanich (he perhaps forgets that midyear bonuses will need to be paid in the middle of the World Cup, for example) we are likely to see spasmodic movements in exchange and interest rates according to whether the dollar and prices seem under control or not while the fundamental tension between the industrial and financial sectors continues, pushing policy in both directions. Sometimes combining a productive model with social inclusion is easier than at others.