It’s not too late for Argentina to reform
Posted by Editor on November 28, 2019 7:41 pm
Tags: Argentina, deregulation, economics, Fernandez, growth, justice, Peronism, reform, rule of law, social spending, structural reform, taxation, welfare
Categories: Latin America
The measures taken during the first 100 days will determine the viability of an orderly solution of the public debt and the recovery of trust that will start a positive growth process. Only with a strong recovery of private investment in a framework of pro-competition rules can the crisis be resolved, by transforming the vicious circle of poverty and fiscal imbalance into a virtuous circle that results in sustained development and monetary stability. Argentina can achieve a 6% annual growth path starting in 2021 and aim to create four million productive jobs in four years. This would allow the country to absorb one million young people who will enter the labor market during that period, in addition to a million public employees, a million recipients of social plans and a million who are now in the informal economy. To achieve this, it is necessary to implement structural reforms that free the forces of the private sector, and that action must be initiated in the first 100 days of the new presidential term, if at all possible.
A) Labor reform. Privilege labor agreements at the company level over collective agreements at the industry level. This will require that the representation of the company’s be unified. This reform requires a change in articles 17, 18 and 19 of the Law 14,250 of Collective Conventions (by DNU or by Law). Ensure freedom of association. Deregulate and simplify the administrative controls of the enforcement authority, and of the labor police. Modify by regulation decree Article 84 of the Labor Contract Law to increase productivity and reduce cost overruns and labor risk. Reduce the cost and risk of layoffs, respecting the acquired rights, through the suppression of severance pay (reform of articles 231 to 255 of the Labor Contract Law, by DNU or Law) and compensating for it with a fund and unemployment insurance. The example applied in Austria, known as the “Austrian backpack”, can be taken as an example.
B) Reform of the national administration. The objective is to substantially reduce the number of employees of the National Administration and achieve greater effectiveness and efficiency in management, ensuring that no person loses income immediately and has the opportunity to reintegrate and progress. The program includes:
i) Changes in public sector standards to incorporate results-based management. Continue with digitalization and improvements in computer technology.
ii) a Decree with a new structure (there is a proposed organizational chart) within the framework of the attributions established in Law 25,164, on Public Employment. The administrative units dependent on each of the six ministries and Cabinet Headquarters (See attached chart) will be defined, up to the level of national directorates, general directorates and decentralized agencies. The decree will establish the staffing of each administrative unit, by category.
iii) Appointment of the ministers of the new structure. Transitionally, for 90 days, the administrative units of the old structure will be assigned to each of the new ministries. In that period each new minister covers the charges of the new structure giving priority to the available personnel. Once the re-setting of the staff is completed, those who have not been relocated to the new structure will remain in the condition of availability established by Law No. 25,164 Art 11 (They do not fulfill tasks; but they collect salaries for one or two years, avoid the social cost of running out of income).
iv) Incentives for companies that hire them: exemption of employer contributions over a period of two years and subsidy on training expenses in new employment. Early retirement will be offered to those who, being available, haven’t obtained employment in two years and are over 60 years of age.
C) Gradual reduction of social plans to those who need them least, seeking to encourage employment, for example, by generalizing the “Empalme” plan. Suppression of funds allocated to the Popular Economy. International audit to review the excesses committed in the fraudulent allocation of disability benefits.
D) Continue with the reduction of energy and transportation subsidies, normalizing tariffs and prices within a reasonable period of time, so that they cover costs plus a profit that encourages investment in the sector. The impact on the lower income strata should be selectively buffered with demand subsidy instruments (Social Rate).
E) Raising the retirement age in a process that will begin by matching women and men 65 years of age, scheduled to reach 70 years for both sexes in a decade. Mothers will be protected, receiving the equivalent of two years of contributions for each child up to a maximum of 7 years.
F) Sending a Law to Congress for the reform of Federal Co-participation. Return tax powers to the provinces (covering earnings, fuels, personal assets, internal). Replacement of Gross Revenue by Sales taxes (at the provincial level) and calibration of this with the VAT rate (at the national level) to join with current primary distribution. Suppression of vertical co-participation. Compatibility with current secondary distribution through a Horizontal Redistribution Fund that produces a splice with a current system, but when these percentages are fixed, they must accompany any increase in expenditure of a province with additional provincial taxes. That way the incentives will be aligned and authorities will tend to spend less and better.
G) Announce the gradual elimination of the tax on the customs checks and export duties as public spending decreases, but with a course pre-established by law.
H) Work on the realization of the Mercosur European Union free trade agreement. Agree with Brazil and the other two Mercosur partners on a plan to reduce the common external tariff. Start the negotiation of other bilateral free trade agreements.
I) Correct the regulations that prevent the use of other currencies, repealing the forced legal use of the peso. Facilitate the use of electronic money.
J) Regulatory deregulation and simplification. Particularly of the rules of the AFIP, the BCRA and other regulatory bodies. Aim to disrupt the interventionist norms (Ex. Rentals Law).
Measures b) through g) aim to achieve fiscal surplus that will allow the government to reduce the tax pressure and restructure without adding to the public debt. That achievement, accompanied by a), h), i), j), will constitute the axis of the plan to be immediately presented to the IMF to unlock the outstanding disbursements. The objective should be to recover the stability and strength of the currency, to genuinely reduce interest rates and expand credit. These economic measures must be accompanied by the consolidation of efficient and independent justice, to deliver more security and political stability. This will boost investment, competitiveness and the creation of private employment. The latter will make the reduction of public employment and social subsidies feasible. In this way, the current vicious circle of stagnation, deficit and inflation will become the virtuous circle of growth, employment, improvement of real wages and stability.