Proposals
PROSPECTS 2001/PROPOSALS 2001
October 2000
In our report from September 1999 we stated the following:
"What can we possibly expect for the year 2000?
The candidates of the October elections already have a picture of what is happening. They have an opportunity to change the course. From an economic viewpoint, and in order to produce a general improvement through a domino effect, the following basic issues should be tackled:
Reduce fiscal deficit to an acceptable level.
Turn Argentina into a great exporting country.
Improve the country-risk index, so as to reduce local interest rates.
Establish the Mercosur as intra and extra-regional.
AND MAINLY, TO TAKE INTO ACCOUNT THAT WITHOUT A GREAT NUMBER OF PROJECT INVESTMENTS IN NEW COMPANIES AND THE EXPANSION OF THE ALREADY EXISTING ONES, THE LEVEL OF UNEMPLOYMENT WILL NOT BE REDUCED. "
A year later, this trend remains unchanged.
Our authorities must apply all of their intellect to generate this large number of productive investments. This will be the only tool that will lead to reduction in unemployment, growth of the fiscal income and a change in the consumers' mood.
Project investments are aimed at three different areas:
domestic consumption
industrial consumption
export
Why would an investor who is presently considering his entry to the region decide to settle in Argentina? What is our appeal?
We have thus submitted a number of proposals to our government - proposals that we estimate will help produce a radical change in the economic trend.
This is a summary of such proposals:
- Change the foundations that rule the exchange rate without leaving the convertibility. We suggest that our Peso, the Argentine currency, should be connected to economic indexes of those countries that influence our economy in any shape or form. In other words, to stop the reevaluation.
- A new layout of the Mercosur (intra, as well as extra-regional).
- The creation of an autarchic Mercosur entity.
- A regional statute for distribution companies of massive consumer
products.
- A very clear stand on behalf of the authorities in regards to prioritizing foreign trade.
- A statute concerning money laundering where the investor is protected from
unfair competition.
- A statute against monopolies where all acting parties are protected.
- Small and Medium-sized Companies.
- A Housing Development Program.
- The creation of a regional web for social security.
- The elimination of the Value Added Tax, replacing it with a Sales Tax.
- Messages.
Dollar Exchange Rate:
Our economy is growing at a slower rate than the economy of those countries connected to us.
If we do not prompt strong conceptual changes, this situation will grow worse. Every day it becomes more difficult for us to compete. We cannot possibly reactivate our activities in the short term.
The exchange rate is then the adjustable variable that would balance the referring economies.
This global system demands that the exchange parity will compensate for the differences of economic rates among different countries.
The economies have inserted one another, forming a complex system where the exchange rates unify the language.
We need to experience a very strong growth in our foreign trade. Those who only contemplate the relationship between our foreign trade and our GDP conclude that our economy is not open enough.
Is it really that way or our so-called 1-to-1 does not allow the development of the foreign trade?
The production investor is not attracted to us when he looks at our rates and numbers. We should show the foreign investor a different picture.
Let us sit across the desk of said investor and picture his analysis when deciding where to develop a project.
Brazil, Chile, Mexico and South East Asia are growing and drawing investments. They offer a solid present and future with clear goals.
In order to experience growth, Argentina needs a strong deflation. The message that we send to potential investors is that the authorities will keep on pushing for lower costs.
But any investor knows that it is easier to grow with a reasonable exchange rate, than to do it on the basis of a fortuitous deflation.
Although we clearly intend to have a currency of our own instead of a foreign one, as a paradox the fact is that we persist in ranking it equal to another currency.
Today the dollar is the strongest currency worldwide - it is based on an economy that grows at amazing rates, with investments and its GDP growing at a remarkable pace, an almost nonexistent unemployment, a positive fiscal balance and an increase in consumption that exceeds all expectations. Our Peso is based on all these indexes, but bearing inverse numbers. Nevertheless, the Peso is considered equal to the dollar.
When compared to other currencies, the dollar has been reevaluated about 25%. Our Peso has been reevaluated about 25% too. May we technically justify this reevaluation? Definitely not.
We have made no use of the boost in foreign trade. While everyone keeps growing, we are paralyzed. What can we expect when this international feast of growth is over? Countries will compensate a probable decrease in their foreign trade with a major placing of their products in the local market. What are we supposed to do then? Suffer even more.
Due to fear, our consumption is at a halt. Our participation in foreign trade is insignificant.
While we continue not to profit from this feast we'll be harmed even more when it ends.
It is essential that we show some signs of change. We have to seduce investors with clear projects. It is time to show the world that our exchange parity will adjust according to the world economic indexes.
If our net rates are inferior to the countries we reference, we will compensate the imbalance with the exchange rate.
This means that if our economic rates are placed below the reference countries, our exchange parity will be the adjustable variable.
This strategy will attract new investments, since we'll establish we won't allow our growth rates to deteriorate.
A statute covering this circumstance will give a clear message of the goals for the future.
Therefore, the exchange parity will respond exclusively to a specific occurrence and this will bring no uncertainties.
In short, just modifying the convertibility legislation for the future, so that in quarterly periods, if our net growth were to be inferior than the reference countries, the exchange rate should be adjusted based on that difference so we remain even to them.
The legislation must clearly establish which countries these are, the rates to be compared and the percentages, thus leaving no room for speculation.
In other words, a briefcase of rates and indexes would rule our exchange rate.
We must show that we are not willing to continue reevaluating our Peso.
Mercosur:
Return to the initial concept that the region is the Market.
Regionalize the business-trade unions and propose joint projects for the region.
Leave behind the contradicting terms of euphoria and frustration that we have felt in regards to the idea.
The private sector should act as a source of proposals to the authorities, providing the entire scope of negotiations.
We believe that the creation of an autarchic Mercosur entity is necessary, giving government functionaries and leading managers sole authority to face this challenge.
Regional legislation for Distribution Companies of Massive Consumer Products:
Due to the lack of established sectarian regimes, and in order to avoid certain discrepancies, we proposed the University of Buenos Aires to create teams to work alongside with other regional and extra-regional universities. This would allow the study of independent modules for diverse activities, to then deliver them directly to the pertinent business sectors for their later discussion.
A first module will concern massive consumer products and its goal would be to study certain general and particular conditions for the creation of a special regulatory frame for the whole Mercosur region - a frame that would also apply to future associates. This would bear regional road and fiscal policies, ground transportation and rail logistics, as well as the composition of a unified aerial, maritime and fluvial code. The local market will conceptually disappear, and become a regional market.
Also, creating a regional and extra-regional Futures Market of massive consumer products, and establishing the double route of import/export trades (it will function as a permanent international fair in the main cities of the region.)
Programs of incentives/exceptions for the creation of industries. Lobbying among the legislators of the member countries, so they support said initiative - these parties will be handled specific law projects (the final result of the studies), for their discussion and treatment.
In order to move forward in these studies, it is essential to have the intellectual and financial support of both the private sector and international organizations.
Money Laundering Legislation:
It is presently focused on the visible aspects of laundering and must be pushed even further to protect the investor from unfair competition - many investments have not been realized in the past on account of the uncertainty concerning other acting parties.
A frequent concern from investors refers to which mechanisms the Argentine legislation uses to attack those businessmen who use their role as a front for money-laundering operations.
Against the Monopoly:
Two opposite points need to be analyzed: the consumer and the supplier.
There is substantial concern by a section of the legislators regarding how acquisitions and mergers influence the consumer. And on the other hand, we have the small and medium companies, which are suppliers of these companies and they become captive as a result of those mergers and acquisitions.
The small and medium firms have an important role in any economic system and we must protect them as suppliers to the big corporations.
The general problem with the small and medium companies deserves another chapter. They have been the real victims or casualties of this new economic plan and the legislators have not yet created the necessary tools to prevent their disappearance.
Commercial, industrial, agricultural, services - small and medium firms have all suffered equally and it's time for the legislators to repair this situation.
We need active small and medium companies to revert the problem of unemployment.
They are the only ones capable of taking up the space big corporations are leaving, and furthermore, the ones that can contribute to the "design exports" market (which is fundamental to our trade balance).
Housing Development Program:
The most generalized aspiration or yearning of our society is the creation of employment.
This level of unemployment can not possibly be modified with the celerity that justice and the demands of the economy impose.
On the other hand, the State - not only at a national level, but also provincial and municipal - has non-productive urban premises, some of them remnants of privatizations, and which could and must be modified in order to create wealth. Even better if we respond to a social demand at the same time.
In fact, the construction of popular houses responds to these three aspects: employment, fiscal lands and social finality. But for the plan to be accomplished, it should reside in private hands.
The volume of employment that propels construction allows for an immediate change in the unemployment rates.
Construction also creates employment for small/medium firms and industries that are direct or indirect suppliers.
This project tries to tie all the necessary elements to create an active and efficient policy - an economic endeavor combined with a deep social sense, which utilizes the best forces of our civil society: private companies, professionals, business and academic institutions, trade unions, religious bodies, common welfare organizations and other non-governmental institutions. Specialized international organizations are invited to participate as well.
The goal is an ambitious plan for the construction of popular houses for approximately 12 billion dollars.
The basis of the project relies on the State granting urban public premises - these would be assigned by means of competitive bidding for the construction of living units.
By private Companies that will be responsible for:
- Constructing according to a construction handbook that will define up to the smallest detail the conditions and obligations of the firm.
- Obtaining financing for the construction.
- Delivering the units to the beneficiaries on a final, non-changing price established prior to the bid.
The beneficiaries:
- Will be selected according to an objective system established in the handbook for allocation.
- Will pay fixed, consecutive monthly installments for twenty years…
- …that will include the amortization of the capital and the interest at a yearly rate of 3%.
Everything shall be regulated by an audit handbook:
- That will ensure objectivity, ease, publicity and transparency.
- That will ensure that the Construction handbooks and the Legislation of the Government are fully respected and achieved within all terms.
The State will be responsible for:
- Granting, through public building concessions, the public properties covered by the plan.
- Incorporating public provincial and municipal lands in such concessions.
- Determining the authority that will supervise the project.
- Be liable for the rate differential of 3% yearly that will be paid by all beneficiaries and that which will establish the winning bidder.
- Establishing a bid for each operation.
- Awarding the bid or otherwise declare it vacant.
- Finding solutions for emerging conflicts.
The society will be an active representative.
Regional Network of Social Security:
In order to avoid a rotation of people among the countries of the block, the social crisis must be focused on a regional level.
We have forwarded the details of this project to the countries of the Mercosur and the Ambassadors of the regional block, as well as the General Director of the International Monetary Fund, the President of the International Development Bank, CFI authorities and the World Bank.
The general dispositions of the project are:
Alternatives to organize the funds, in order to guarantee their arrival to the real beneficiaries. We have thought of non-governmental institutions, schools and municipalities, conscious of its pros and cons, which should be object of evaluation.
The lack of active policies regarding social security represents a problem that affects every member country of the Mercosur. Therefore they should all act in agreement, since individual actions would result in general failure.
The Mercosur is paralyzed or otherwise working very slowly. This would be the first great project, to discuss at a regional level, that ever country agrees with.
Unemployment rates will diminish through economic recovery, which would take at least three years to show results.
A network of social security should be established during such period of time, providing all the unemployed and sub-employed with alimony, training and medical attention.
This will not only require a better administration of the existing funds, but also additional capital. To gather additional funds we recommend the emission of a Regional Public Debt bond.
This bond will be for ten years, for an amount equal to 1.5 per cent of three years of the regional GDP. An international firm will audit the application of the funds.
Project investors feel better when social security policies are created, even though the budget deficit is increased.
Local Sales Tax:
The Value Added Tax (VAT), safeguarded by all parties for its stability, has shown many flaws in our country.
The fact that this tax allows credits and debits makes it difficult to control.
Books and documents must be carefully supervised to establish their veracity and determine if the tax has been correctly liquidated.
A Local Sales Tax could be easily audited, and maybe exaggerating, we could say that the level of liquidation could be established by market demographic dispositions.
Moreover, by removing the tax, delays in the restitution of the VAT for exports would be avoided.
The system, in addition to simplifying, responds to principles of sufficiency, elasticity and a greatest possible neutrality. A tax of these characteristics would not only reduce collecting costs, but it would mostly help diminish the ineffectiveness our Tax Agency has shown regarding evasion and elusion of taxes, which have reached unbelievable levels in recent years.
We can not possibly attract investments when evasion deprives the competition from its nature.
Communications:
For the short term:
Today the economic authorities are prioritizing the messages sent to financial investors. They should instead allow more space for project investors. When a crisis arises, the Minister of Economy tends to send his men on a road show to calm the financial investors. In such scenario, it is necessary to do the same, using a different representative, to inform all potential productive investors too.
The National Cabinet should appoint a person totally and exclusively devoted to attracting and defending the investors in productive projects.
Another member of the Cabinet should work exclusively on reducing public expenditures.
The format focused on the defense of the economic strategy, which proved to be successful in the past, should be reestablished, thus linking the Minister of Economy, the President and the Legislators.
For the long term:
We could request International Institutions to provide funds through non-reimbursement financing and contact private consulting firms to analyze how to reduce each budget item.
Prepare ourselves to approach the new US government in March of next year with a remunerative plan, once all opinions for and against the Mercosur-Alca have been resolved.
These have been, in essence, the proposals we have sent to our authorities during the past months.
by GUILLERMO CARRACEDO