January 23, 2018

The week

Friday, January 6, 2017

Donald, Ronald and crime in our time

Three wise men to celebrate Epiphany-Reyes today?
Three wise men to celebrate Epiphany-Reyes today?
Three wise men to celebrate Epiphany-Reyes today?
By Michael Soltys / Senior Editor

A new year has now begun (happy 2017, everybody) but nothing especially new about the main themes in its first week — the economy and crime.

Nor are they topical due to anything special happening in the last week. The dominance of economic issues (never far from the foreground in Argentina) is the natural consequence of the buzz surrounding the new ministers Nicolás Dujovne (Treasury) and Luis Caputo (Finance) replacing Alfonso Prat-Gay (bounced on December 19) — much of that buzz created by the loquacious Dujovne who gave something like half a dozen major interviews in his first half-week. And the return of crime (again, never far from the public mind) to the front-burner stems from another event that same December 19 — the storming of a Flores police precinct by irate citizens infuriated by the slaying of a local teen by a juvenile motorcycle thief with the same name (Brian) and almost the same age.

Normally the week between Christmas and New Year is the deadest of the year in news terms with everybody absorbed by the festivities but it was all too eventful this time around — not only the aforementioned December 19 news items but ex-president Cristina Fernández de Kirchner suddenly facing trial on a couple of a fronts (no more about that in this column because it is already the subject of an editorial on page 16 and because nothing further will happen this month owing to the court holiday). Even the one debate to originate this week — over the extra 25 billion pesos for Buenos Aires province Governor María Eugenia Vidal — did not arise from anything actually happening but from anticipation of a decree which had yet to be issued when this column was written. This week is indisputably the slowest of 2017 because it is the only one so far but it also stands a pretty good chance of remaining so at the other end of the year.


One slick way of describing Dujovne’s plan would be to say that he is trying to head off problems with Donald via the economics of Ronald — i.e. faced with the prospect of higher international interest rates from Donald Trump’s determination to keep jobs and hence capital in the United States, the new minister proposes to make Argentina more competitive via the tax cuts made famous by Reaganomics (known within the profession as supply-side theory). The cornerstone of supply-side economics is that tax relief would generate so much growth that revenue would actually increase although that was not Ronald Reagan’s experience (“I never worry about the deficit, it’s big enough to look after itself,” he joshed). Dujovne does worry about the deficit but he does not have much margin to cut public spending in an electoral year — his strategy is thus gunning for growth to convert constant sums of government outlay into a lower percentage of the economy, a logic very similar to the supply-side approach to revenue.

Dujovne ran into early controversy by making “ridiculous” payroll surcharges amounting to some 40 percent of wages the spearhead of his tax cut proposals. Héctor Daer (a deputy for Sergio Massa’s Renewal Front and one of the troika heading up the CGT labour umbrella — one of the “three wise men” we might say, given it’s Epiphany today, or would it more accurate to say “wise guys”?) argued that employer social security contributions are a “deferred wage” not a tax while their removal would drain pension and welfare system funding. Nor does the CGT look like taking a passive attitude towards wages as such in this year’s collective bargaining — they share the scepticism of most economists as to whether inflation can be held below 20 percent with the steep increases in the pipeline for utilities, fuel, highway tolls and healthcare among other items.

At the same time Dujovne risked early unpopularity with President Mauricio Macri’s middle-class constituency by announcing that the five percent IVA value-added tax refunds on debit card purchases (maintained since 2001) would be discontinued this year. Apart from trimming the deficit, this move obeys a similar logic to the government’s uphill battle to end subsidized gas and electricity bills — namely that it benefits the middle class far more than the poor. Although Dujovne placed his face behind the announcement, the Central Bank may well have played a leading role here. An early assertion of economic leadership if Dujovne insists on taking the rap here — no interest in being Santa Claus despite having the right first name.


Yet in seeking to square the circle with fiscal entrenchment in an election year, Dujovne also has a couple of solid grounds for optimism.

One is the extraordinary success of the tax whitewash, which seems to have wiped out all the 2016 fiscal excesses of the Macri administration at a single stroke — already moving into 12 digits, it was US$97.8 billion at the close of the year. Of course, that does not mean almost US$98 billion entering the Treasury or even country —the fines as a condition for pardoning tax evasion totalled some 106 billion pesos at the end of the year (a very rough rule of thumb would be that for every dollar of tax whitewash, there is one peso for the state).

A rule of thumb which depends on the exchange rate, of course. In the immediate term the paradoxical effect of a wildly successful whitewash has been to send the dollar soaring, shooting up by some 50 cents since Christmas — in theory, a 12-digit influx of dollars soon to be followed by a bumper harvest should remove all scarcity value from the greenback and send the exchange rate the other way, especially since the turn of year normally marks a rare period of seasonal demand for the peso due to Christmas bonuses. The lack of peso appreciation is testimony to the sheer volume of money printed to cover a steadily rising deficit after a year of Prat-Gay’s “gradualism” — in practice major tax cuts in some areas unaccompanied by any serious reduction of spending.

The other basis for optimism is that the highly sporadic “green buds” promised by Macri for the “second half” of 2016 have suddenly started sprouting in the bleakest industrial landscape of them all — the auto industry. After a free fall throughout 2016 with plunges of up to 30 percent in some months, automobile output soared 27 percent in December with the result that production fell by “only” 10.2 percent last year. Meanwhile car sales actually rose by that identical percentage of 10.2 percent instead of falling, aided by imports. Does Dujovne have the extreme good fortune to start just when the economy is turning the corner from recession (retail sales fell seven percent last year, according to the CAME shop business chamber, while even the government admits to real wage erosion of three percent)?


Probably more than enough on Dujovne (and his far stealthier colleague Caputo) — still such early days for the new economic helm.

Plenty of huffing and puffing from other provinces about Macri’s “Reyes” present to the youthful-looking Vidal but they really do not have a leg to stand on. If Dujovne finds Argentina’s labour surcharges “ridiculous,” what would be the right adjective for a reparation fund earmarked for Greater Buenos Aires (Fondo del Conurbano Bonaerense is its Spanish name) which gives just 1.3 percent of its money to that province with almost 40 percent of the population?

That fund (consisting of 10 percent of all income taxation) was created in 1992 to compensate Buenos Aires province for only receiving 18 percent of federal revenue-sharing despite accounting for over twice that percentage in terms of population and output — the province’s share was capped at 650 million pesos during a convertibility decade when a peso was worth a dollar. Two decades of inflation and multiple devaluations later Buenos Aires province is still collecting 650 million pesos — every province (even Tierra del Fuego with just 150,000 inhabitants) collects more. Furthermore, many of these provinces dump their social problems on Buenos Aires — several inland provinces have less than half the national unemployment rate because anybody without a job heads straight to the Greater Buenos Aires urban sprawl.


Last year began with crime occupying centre stage in the form of the prison breakout by a trio convicted for the 2008 General Rodríguez triple murder, remaining on the run for a fortnight — this year law and order issues might not be quite so dominant but prominent enough.

The debate arising this week around the government proposal to lower the criminal responsibility to 14 is obviously a direct consequence of the outrage sparked by the slaying of the Flores teen by the underage motorcycle thief but that is not the full story here.

December’s picket activism (with traffic chaos almost constant in the first week of that month) seems to have served as a catalyst for a rising public frustration with policing after almost a year of merging the Federal and Metropolitan Police forces with no visible results. Macri has reportedly leaned on City Mayor Horacio Rodríguez Larreta, who would seem to have made more hands-on policing his New Year’s resolution — the midweek clearance of squatters from the former Padelai orphanage (just up the road from this newspaper) in a massive police operation could be an early indication here. The likes of pickets and squatters might well compete with the real criminals for police attention in an election year — let’s see how this develops.

And party politics? Try Punta del Este among other places — not much going on in this metropolis.

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