Macri Crashes Against Reality in Bid to Open Argentina’s Economy

  • President Macri starts to dismantle years of protectionism
  • Opposition mounts from industry, labor unions and politicians

He took office promising to lift the trade barriers that made Argentina one of the most closed economies in the world. Eleven months later, President Mauricio Macri is finding that unraveling more than a decade of protectionism is easier to do on the campaign trail than in reality.

Even steps to remove the most extreme and arbitrary restrictions on imports, which the World Trade Organization had ruled illegal, met with opposition from industry and some backtracking by Macri. Now, the president is preparing to take the fight to a whole new level and reduce import tariffs of as much as 35 percent on electronic goods, including televisions, mobile phones and computers.

Cosseted by years of protectionist policies during the presidencies of the Kirchners - Nestor and Cristina Fernandez - local business groups, labor unions and politicians are warning of job losses and economic disaster if local industry isn’t sheltered. In response, Macri has taken a gradualist approach to avoid social upheaval as the economy contracts and unemployment rises.

“There are sectors which are clearly vulnerable, that aren’t competitive, and that we’re going to work with in what we call ‘productive transformation’,” Production Minister Francisco Cabrera said in an interview on Sept. 14. “It means we’ll work in consensus with businessmen to see how they can shift the focus of their production to sectors that can be competitive.”

Consensus may be hard to find. Tens of thousands of jobs depend on the home appliances, air conditioning units and mobile phones that are assembled in the far south, or the clothing, footwear and textiles manufactured across the country -- industries that survive because of heavy subsidies or protectionism.

For more on the opening Argentine industry to competition, click here

Apple of Discord

The campaign against opening up the economy is already under way and no product is deemed too small to protect.

“Do you know what this is?” opposition lawmaker Maria Soria demanded of the cabinet chief during a debate in congress in August. “This is an apple from Chile. Did you know that thanks to your macroeconomic policy we’ve got more than 700,000 kilos of Chilean apples competing with production from Rio Negro?”

Similar indignation in the footwear industry has forced Macri to cap shoe imports at 24 million pairs until 2018, Alberto Sellaro, president of the Chamber for the Shoe Industry, said in a radio interview on Oct. 28. A surge in imports had led to the industry losing 2,000 jobs this year, according to Agustin Amicone, secretary general of the shoemakers union.

“Lots of Argentine companies are losing market share in the face of an avalanche of imports,” opposition leader Sergio Massa said Sept. 5 during a visit to a shoe factory in Buenos Aires province. “There’s nothing more important in Argentina than looking after small and medium-sized companies and our people - everything else is secondary.”

Heavy Cost

Consumers pay a heavy price for protectionism. A Samsung 55-inch, curved, LED television in neighboring Chile will cost you $689 at the department store Falabella, while the same company sells the same product in Argentina for $2,300. Similar margins can be found in most domestic appliances as well as clothes and shoes.

Those differentials are a response to the great lengths to which Argentina’s previous government went to protect local industry. Companies had to request the right to import goods, explaining to the authorities why they couldn’t find local suppliers. It was that system which the WTO ruled was illegal.

Neither would the post office deliver international purchases to people’s home, forcing consumers to endure hours of waiting at the local post office.

Since December, Macri has loosened the majority of those obstacles, with about 80 percent of import requests now approved automatically, said Marcelo Elizondo, director of Buenos Aires-based Desarrollo de Negocios Internacionales. The post office has also started to deliver purchases made abroad, triggering a jump in trade for companies such as Amazon Inc.

Argentina has the fourth most protectionist economy in the world, according to the Centre for Economic Policy Research in London. Between 2008 and 2016, the country implemented almost 400 measures - one every seven days - that discriminated against trade, according to CEPR.

Sigh of Relief

Many companies are already breathing a sigh of relief. Juan Vaquer, Chief Executive Office for Latin America at DuPont, said the company used to spend much of its time filling out forms and working out how to get hold of the imports that the government had supposedly authorized.

“You spent a large part of your time trying to do things that according to the law you could do but that in practice they wouldn’t let you do,” Vaquer said. “Now we’re spending that time on how we can make our business grow.”

As the government eased restrictions, imports rose 8 percent in volume in the second quarter from a year earlier, with imports of consumer goods jumping 29 percent, according to the national statistics agency.

That increase led Massa in September to propose a law declaring a “customs emergency” for 120 days to impose new controls on imports. Macri criticized the bill.

As imports rose and the economy contracted, Argentina lost 118,000 jobs in the first half of the year, according to the national statistics institute. It is a backdrop that is going to weigh heavily on any decision to open the economy further.

“With 33 percent poverty, Argentina doesn’t have the luxury of addressing such an issue when it knows it’s going to leave thousands of workers jobless,” Amicone said by phone. “You can’t talk about competitiveness when we’re virtually in a catastrophe.”

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