Despite the economic rebound projected for this year, job creation expectations in Argentina’s industrial sector remain bleak. According to data from the INDEC statistics bureau, one in four companies plans to reduce its workforce within the next sixty days. The government is deepening the exchange rate lag while accelerating trade liberalization. Meanwhile, companies — alert to high taxes — warn that an “explosive mix” is forming for national production.

The industry barely has time to process one piece of bad news before the next arrives. After the heavy blow of the recession in the first half of 2024, a sharp process of deregulation and trade liberalization followed. Then, the exchange rate began to appreciate, and tariff reductions were introduced.

Everything is moving in the same direction — more difficulties producing in Argentina. “A fixed exchange rate, no tax cuts, and tariff reductions — it’s a collective execution,” stated the owner of an industrial company with multiple factories in the country that employs over 600 people.

The combination described by the entrepreneur, who requested anonymity, is becoming even more pronounced. Inflation accelerated again in February, jumping to 2.4%, just as the government decided to slow the pace of official exchange rate devaluation. Over the weekend, Economy Minister Luis Caputo announced another round of tariff cuts. The industrial sector criticizes the order of events, arguing that import taxes are being cut first, making for an uneven playing field.

Tariff Reductions

“In the coming days, we will publish a decree in the Official Gazette to lower tariffs on clothing and footwear from 35% to 20%, on fabrics from 26% to 18%, and on various yarns from 18% to 12%, 14%, and 16%,” Caputo announced on his X account.

The Argentine Chamber of the Apparel Industry and the Argentine Apparel Federation responded with a strongly-worded statement: “The tariff reductions announced by the national government will destroy thousands of jobs and domestic companies.”

They continued: “The government must first fulfill its promises to lower taxes, reduce payroll costs, stop abusive lawsuits, cut high financial costs, and lift currency controls.” 

“Without doing that first, this measure is industrial suicide,” they concluded.

Next Monday, the Textile Chamber of Mar del Plata will hold a press conference, warning that the measure will have a severe impact on the city. The textile value chain employs 520,000 people nationwide.

Employment

Employment is emerging as one of the most sensitive variables in the coming months. According to an INDEC survey, 27% of industrial companies plan to cut jobs in the next 60 days. Only 7% expect to hire new employees, while 60% plan to keep their workforce unchanged.

Sources from the Argentine Association of Metalworking Industrialists explained that in February, the sector experienced a 1.8% year-on-year decline and a slight 0.3% contraction compared with January. “While some sectors show signs of recovery, the overall trend continues to indicate difficulties in job creation,” they stated.

Expectations in this regard are also not optimistic: 72% of companies plan to maintain or reduce their workforce, while only 28% anticipate a slight increase in employment. “This suggests that the sector’s recovery still faces significant challenges,” the association reported.

Small businesses and the government’s theory

The situation worsens when focusing on small and medium-sized enterprises. Mauro González, president of the Federal SME Confederation, provided some figures: “Nearly 15,000 companies closed in the past year, and about 100,000 jobs were lost nationwide.”

Looking ahead, he agreed that employment prospects are negative. “It has already become clear that Argentina’s production of goods and services has shrunk, and this will directly impact employment,” he said.

Despite the global debate on the relocation of production cycles, the government downplays the destruction of industrial jobs, arguing that jobs lost in one sector will be created in another. However, this premise has yet to be confirmed in practice: according to official data, more than 119,000 registered private-sector jobs have been lost so far.

Originally published on Ambito.com