January 24, 2018

Daniel Funes de Rioja, head of Copal food industry chamber

Monday, March 20, 2017

‘You have to watch out for general strikes against governments, as opposed to their policies’

By Leandro Renou
For the Herald
The Copal food industry groups all players great and small within the sector. Lawyer Daniel Funes de Rioja has headed this chamber for over a decade, co-existing alongside different governments but dodging political definitions. He is also vice-president of the Argentine Industrial Union (UIA). With the sectorial panels between government and businessmen aimed at containing the problems of employment and economic activity left by the recession, Funes began by diagnosing the short and medium term from his downtown office.
“This is a year in which the economic situation will improve,” he told the Herald, “the expectations of growing by over two percent are viable. Any growth beyond that depends heavily on Brazil in the immediate term.
“What should be explained is that not all sectors are going to grow the same or at the same time. Each will thus measure the situation according to his own reality,” he added.
“We believe that it is very important to analyse the situation sector by sector because saying that the Argentine economy will grow by two percent on average is good news but depending on for which productive sector.”

Within the food sector, what would be the rate of growth?
At least around that level, two percent, as against a fall of over two percent last year.

Are January and February still pretty bad months?
Yes. October and November had been a bit better but not this year. Although meteorological and seasonal circumstances had their impact, apart from tourism — there were many people crossing borders to Brazil, Uruguay or Chile. Too early to say about March but it looks a bit better.

February inflation again topped two percent, does that worry you?
Yes, even allowing for the fact that last year the first half was worse than the second, where the expectations levelled out. The issue is actually between real and expected inflation so you have to attack both fronts. We need macro-economic stability for investment and for consumption as well. Because if we just go on hunches, we could be distorting factors.

Within this context, is the government target of keeping inflation under 17 percent sustainable?
Let’s hope so. It also depends on what public service billing policies they wish to pursue.

However, apart from the utility billing, there was also a rise in core inflation, which should not be affected by those exceptions and which includes a big part of the basic food shopping-basket...
If we look at the structure of food costs, less than half is the factory cost; the rest is taxes, distribution, etc. And on the other hand, last year was complex and there’s not much margin (to raise prices) without ending up hurting consumption. Businesses face a delicate balance.

Is there any tension with the government over these issues? In recent days there have been clashes over the role of businessmen and the agreements signed pledging not to fire workers.
I answered this when the representative nature of the UIA was questioned. What I say is that we signed what we signed, not what the trade unions say we signed. We did not sign any ban on dismissals — we signed onto avoiding dismissals without cause. One thing is to avoid and another thing is to forbid. Dismissals are one thing and without cause another.

The trade unions were at the same table where the agreement which has now broken down was signed...
And they signed the same piece of paper. Let’s read what it says. In the same way the end-of-year bonus was not obligatory, neither was that. This issue requires a more careful reading than what is said.

Both President Mauricio Macri and Production Minister Francisco Cabrera have been taking pot shots at businessmen for not pulling their weight in the crisis. How do you see it?
Ask them what they mean. Has there been business backing? Sorry but with industrial production falling almost five percent last year and less than 60 percent of installed capacity utilised (with a third of factories idle), the fact that job losses were only a half of 2008 levels seems to me to be very positive behaviour on the part of businessmen. We cut back on overtime, advanced vacations, co-ordinated suspensions with the trade unions— we tried everything. The auto, footwear, heavy engineering and other industries have been hit by a wave of imports at the expense of local activity. Our food sector could only work at 65 percent of installed capacity. The regional economies improved a bit but their markets have not been very receptive either. We believe we have behaved responsibly.

Is this scenario as you describe it the right one to bring in investments?
You have to differentiate between sectors. After going to Madrid (accompanying Macri in his meetings with prospective European investors) I can tell you that renewable energy, mining, agrochemicals and farm machinery are worth investing in. There are other sectors but with idle capacity, they obviously have to bridge that gap before expanding. And there are also various limitations to resolve — if I don’t have infrastructure and a reliable energy supply, it is very difficult to make investment plans. If I’m going to invest in exporting, I must have access to ports and the appropriate logistical costs. All that is a process but I believe that there is a will to invest, only it takes time. A country which was isolated from the world and in default cannot expect internal and external investment to react from one day to the next.

With growth targeted at between two and three percent, does not this seem to you a scenario in which the improvements needed to seduce investors are quickly forthcoming?
Today’s logic is sustainability. Argentina has had its ups and downs, which is very bad as it has hurt the continuity of companies. Fixing an annual growth target of three percent and projecting it over the medium term is a good horizon. If that serves to avoid our recurrent crises, it seems a smart improvement. Whatever the anxiety, you have to put together what is possible and give it sustainability.

Does having elections every two or four years work against achieving that stability you mention?
Our political system is designed so as to have presidential elections every four years and legislative midterms every two. You have to adjust your expectations accordingly and try to reduce the political influence in economic expectations, which is only possible with state policies across parties.

Is it a problem or a benefit that 80 percent of the Argentine economy is based on consumption?
I believe that consumption without investment overheats the economy and causes inflation. You need a good level of consumption but accompanied by a good level of investment. This government has launched various social protective policies with the aim of achieving a greater level of inclusion and that helps consumption. But everything has its limits.

Who sets the prices today in Argentina?
Industry accounts for between 30 and 50 percent of the final price — the rest comes from other levels. I would say that the state is a major player in the formation of prices. And the distribution chains also converge. There have been disputes with supermarkets but that’s natural — that’s why you need a regulatory framework for transparency. This government recognises the role of private initiative; we come from a system of price controls which ended up generating asymmetries and distortions. We believe in the market and in competition.

Businessmen, especially manufacturers, insist that the taxes they pay are too high. Which would they eliminate?
The entire tax system and revenue-sharing need to be reviewed. From the cheque tax onwards, all levies bring distortions. We carry an accumulated tax burden (at national, provincial and municipal levels) which needs harmonising. The gross earnings tax seems the most evident and urgent candidate. Half of what you pay for a bottle of mineral water is tax..

Is the government receptive to those requests?
It understands them and knows they need a solution. They say that they have to be considered within the government’s fiscal problems.

The CGT is about to define the date of their next general strike. How is that analysed from the business standpoint?
Today you’ve got to produce and produce and produce. I would prefer other protest mechanisms. And from the viewpoint of the legitimacy of their demands, every one has been studied. We have allowed collective bargaining to go ahead freely, the trade unions have settled for whatever percentages they could and collected whatever bonus they could. As for dismissals, we never signed a commitment not to fire anybody. It now remains to be seen if a strike can resolve that. You have to watch out for general strikes against governments, as opposed to their policies. Because we all have to realise that a democracy is governed by those who win the elections. We all have the right to petition but that right has its limits.

Finally, is Argentina affected by the political changes in the United States?
Yes but not all the impact is negative, by which I do not mean any praise of Donald Trump. For example, his decision against the Trans-Pacific Partnership opens up to us possibilities with that alliance which previously were far more limited. Ditto for Mexico, let’s see what happens. Mexico is a very important market for the food industry which was never going to open up and now it is. That’s not replacing Brazil, it’s adding Mexico and that is very relevant.           w
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