Courtesy of Libertad y Progreso, via Xinhua
Argentina needs to carry out a series of structural reforms, including in labor and tax matters, to return to the path of economic growth, according to an Argentine economist interviewed on Wednesday.
Natalia Motyl, an analyst with Fundación Libertad y Progreso, said in an interview with Xinhua that various reform attempts in the country “have failed because two types of balance coexist, the political and the economic. Among them, there is a constant ‘trade-off’ and both seek to impose themselves.”
“On the one hand, there are the political interests, trying to get votes for four years, for the next election and on the other, the economic interests that would allow us to get out of the successive economic crises. Clearly, many of these reforms have a political cost and that is why the political ruling class tries to postpone the reforms later and thus hold in power as much as they can,” said the analyst.
The International Monetary Fund (IMF) released its report on World Economic Outlook on Wednesday and a document entitled “Restarting the growth of the emerging and low-income market”, in which it analyzes the situation of different countries that have made reforms and places the Argentine economy among the most failed, along with Mexico, Nigeria and the Philippines, in implementing structural reforms that would allow it to approach the standard of living of developed countries.
Motyl said she agreed “completely with the diagnosis of the IMF. In order to grow, Argentina clearly needs to carry out a series of structural reforms, including labor reform, to provide greater flexibility to the labor market, and tax reform, through lower tax burden, which currently exceeds 30% of GDP and is regressive.”
Motyl continued: “However, in order to carry out this type of reform, it is necessary, in the long term, [to make] a sustainable fiscal adjustment via reduction of public expenditure and not, as the agency had been endorsing so far, through a rise in taxes that drown the private sector even more,” said the expert.
The economist remarked that “the IMF until now has not been a strong figure when it comes to the herculean task of demanding the reforms necessary for our country to grow. Rather, it endorsed a gradualist policy, which deepened the economic crisis. At the moment we have the same problems as four years ago, but now we are indebted.”
Argentina last year signed an agreement with the multilateral agency to access a loan for $56.3 billion, of which it received about $44.1 billion. A disbursement of $5.4 billion is pending due to political and financial uncertainty in the country following the setback to the Mauricio Macri government in the primary elections held on August 11.
In its report on Wednesday 9th, the IMF noted that Argentina carried out a series of reforms between 1988 and 1997, however without the expected result of approaching the standard of living of developed countries, but rather the opposite — a growth gap 1.5% per annum in the period 1998-2007.
The structural reforms advocated by the IMF include releasing key areas of the economy, such as finance, commerce, product markets and labor deregulation.
According to Motyl, Argentina will return to the path of economic growth if [the government implements] “a labor reform, a tax reform that includes the reform of federal tax co-participation, commercial opening, an educational reform and achieving a stable, healthy currency. Each of them are necessary and essential to be able to get out of this stagnation which has lasted for a decade.”
“In order to carry them out, a strong political figure will be needed to encourage them. I do not think there is much more room for maneuver to try something different given the delicate situation we are in,” she warned.
According to data from the National Institute of Statistics and Census (INDEC) released in mid-September, the level of unemployment in Argentina increased in the second quarter of the year to 10.6%, affecting about 2.1 million people.
In addition, to the contraction of Argentina’s economy, estimated by INDEC at 2.5% at the end of the first half of the year, there is a cumulative inflation of 30% in the first eight months of the year, which makes it difficult for thousands of households in the country to make ends meet.
The economist emphasized that “there are no magic formulas and postponing reforms, which are inevitable, just makes the situation worse. However, sometimes it is better to take risks and face the situation as early as possible. Otherwise, what happened to President Macri could happen again.”
That is, she continued, “the initial problems later became a reduction in governance and economic discipline, which affected the political equilibrium. If they had made the reforms four years ago, when they assumed power, today the story could be different, both for the ruling party and for the rest of the Argentines.”