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September 20, 2014
Thursday, August 21, 2014

Worked up over jobs

Rivals for the vulture funds? The Donnellys in this photo look more like the jobless employees than the US printing multinational Donnelley & Sons (English for ‘hermanos’ according to the presidential interpretation when not using Walter Kerr).
By Michael Soltys / Senior Editor / Economic Outlook
Default issues should not hide deeper problems

If the Black Donnellys (a lawless Irish family in 19th century Canada which was also the victim of a vigilante massacre and the subject of a short-lived television drama south of that border) could return to life and claim their 15 or so minutes of fame at the centre of Argentine politics as the target of an anti-terrorist law, then we seem to be drifting into magic realism. And now we have the Ruby Tuesday announcement of a Congress bill to repatriate foreign debt jurisdiction (first floated by Economy Minister Axel Kicillof on June 17) but this column does not propose to overlap with the editorial on the same page. Just to point out that last Thursday’s column was headlined: “Queen of the wild frontier” — say no more.

Of course, that anti-terrorist rap against Donnelley & Sons magazine printers (can’t spell their own name, it seems, any more than the president knows how to translate “sons” into Spanish) lasted even less time than the 2007 TV series in the United States (which ran for about five weeks) and was not the real core of President Cristina Fernández de Kirchner’s message last Thursday. Nor even was it the pet target of the “vulture funds,” despite the high-octane rhetoric linking the US printing multinational to them (the Blackrock Donnellys?) along with global corporate conspiracies against national interests in general — and despite the definite electoral pull of anti-Americanism in this country.

Instead CFK’s real message should be seen as giving top priority to job protection, perhaps the greatest pride of the “won decade,” by coming down so hard on on anybody thinking of dumping people in the street (as the printing multinational was doing with its 400 employees by declaring bankruptcy even though the government denies that anybody will lose their job) with all the melodrama of an anti-terrorist law — so much more flamboyant than the fraudulent bankruptcy provisions which really applied. Because for all the protagonism given to the demonized “vulture funds,” most people’s real terror is far less Paul Singer than losing their jobs.

Yet the generalized employment jitters warrant a more careful analysis. Last Saturday’s edition of this country’s leading quality broadsheet sent alarm-bells ringing with 10,000 lay-offs in the stalling auto industry but 10,000 does not sound like all that much in a workforce totalling 21 million (private and public sectors, formal and informal, self-employed, working at home, etc.). More general estimates point to 25,000 industrial jobs being lost this year and a similar number in construction but again these figures do not look catastrophic against 21 million. The official INDEC figure of 7.5 percent unemployment for the second quarter of this year looks mild for an economy struggling against stagflation (even if some 200,000 people giving up their job quest subtracts a percentage point). Yet the dangers facing Argentine employment are somewhat subtler than sheer stark job loss.

Instead employers are far more inclined to lay off and prune overtime and will probably continue to do so even if the downturn plunges steeply. Argentine economic life is too cyclical to justify more extreme steps — severance is simply too high, as would be the costs of retraining workers for the pickup most people are expecting in a couple of years, the US$200-300 billion of foreign investment many consultants are confidently promising once there is a change in regime. And even the lay-off figures do not sound so bad — 6.6 for every thousand workers in June, the highest level since 2009.

The worry is far more the declining quality of the Argentine labour market. The constant increase of the state payroll (an annual 65,000 on average since 2008) as against almost zero job creation in the private sector in the last four years while the underground economy’s percentage of the workforce stubbornly refuses to fall — indeed some surveys show the latter to outnumber the formally registered. Not to mention the real wage blues of the vast majority who still have a job as inflation erodes purchasing-power.

If a two-front war was the German nightmare a century ago (not least exactly 100 years ago today when they had not yet mopped up Belgium in their drive to Paris and the Russians were already invading East Prussia), CFK has at least that many fronts and cannot play single-issue politics with default, unemployment or any one problem.

At least two bills up before Congress reflect other urgencies which predate default but are now in danger of snowballing — the highly controversial package of consumer-related bills (including the updating of the 1974 Anti-Hoarding Law) and the YPF-driven oil bill.

Apart from the abstract principle of state control which always appeals to Kicillof, stiffening mechanisms against price increases is the main thrust behind the consumer legislation. All the government’s antidotes to recession create more inflationary pressures — anti-cyclical public spending when the red ink is already overflowing (the June deficit was 17 billion pesos, quadrupling mid-2013) with the corresponding expansion of money supply, and lowering interest rates (which is already costing the Central Bank its ability to “sterilize” or absorb the excess pesos being printed). Not to mention the strong expectations of more devaluation before the year is out.

Meanwhile, the oil bill is given urgency by the need to recover the other “twin surplus” from the best Kirchnerite years now that the fiscal is down and out — i.e. arrest the rapid shrinkage of the trade surplus via the fuel import bill (US$14 billion last year). The government (and especially YPF CEO Miguel Galuccio) is convinced that in order to develop Vaca Muerta shale and other energy potential, foreign investors need to be guaranteed against exposure to extra provincial and municipal taxation.

Neither of these bills will be an easy challenge for the fragile overall majority of a lame-duck administration. Many provinces (including the main oil-producers) are defending their royalties against what they see as hypercentralization while business opposition to the state intervention in company decision-making under the consumer legislation is almost unanimous. And now that bill to repatriate foreign debt jurisdiction is on its way into Congress.

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