If George Clooney has kept telling us in recent years: “Nespresso – what else? His question has become less rhetorical in Argentina this year with an increasing shortage of capsules and machinery since at least March – the tightening of imports reflecting the dwindling stock of central bank dollars.
Born from the need to respond to “what else?” Question, import substitution was intended as the cure, but it has to be said that it is also the disease. All the elements of this vicious circle date from the same period. Rather than an extravagant nationalistic fantasy of “living on our own” self-sufficiency, import substitution arose out of the simple evaporation of world trade during the Great Depression from 1929. Soon after, the monetary side of the equation changed permanently when Argentina last became the gold standard in 1933, followed by the establishment of the Central Bank in 1935. In short, monetary intervention coincided with the interruption of normal trade flows .
Since then, many turns of the screw, the last one arriving this week and taking the form of dollars available before the delivery of the imported goods, being reduced by three quarters from one million to 250,000 USD, while the quota of Daily import without a special increasingly delayed authorization was hacked from US $ 50,000 to US $ 10,000. The government is thus moving ever closer to setting up trade on a gross ‘cash on delivery’ basis, which would be totally doomed – given the dismal credit ratings of the country. Argentina, importers would be hard-pressed to find suppliers willing to wait weeks or months while their goods are shipped here before collecting a dime, always assuming there are no further capital controls. . Given that about 90 percent of Argentina’s manufactures contain at least some imported inputs (virtually total in some cases like Tierra del Fuego’s electronics assembly factories), this bottleneck threatens to choke off any further rebound. after the fall of the pandemic.
There is another side to this story that only serves to deepen the vicious circle – with dwindling reserves limiting the release of foreign currency to industrial needs and a growing energy bill, the temptation to play all kinds of tricks with the economy. billing for imports and exports becomes overwhelming. . The authorities are responding to this by tightening capital controls, slowing the influx of inputs and production at a time when there is more money than ever to chase goods with all the trillions of pesos. printed. But this monetary laxity only depleted central bank dollars to the tune of nearly a billion last month in order to bring the exchange rate under control.
Such shortcomings date back to my early days at the Herald of Buenos Aires writing in 1983 and in fact long before them. Even Argentina’s golden years in the half-century 1880-1930 were not free from intermittent shortages of foreign currency. These did not recur over the next two decades due to the minimization of imports by the Great Depression of the 1930s and World War II, which was followed by the payment of massive British debts and other debts. of war. But in the drought year 1949, that money had been fully spent with Central Bank reserves falling from 27 to 7 percent of gross domestic product in the first three years of the Peronist government. A dip on this scale was not to be repeated until the presidencies of Cristina Fernández de Kirchner when reserves slipped from 15.6% to 3.6% of GDP between 2009 and 2015, but the intervening six decades have seen too many ups and downs to detail here (mostly downs without the glut of the postwar years or the commodity boom of the first decade of this century).
The central bank’s precarious reserves have been a constant for all these decades, but have been embedded in the much larger history of debt crises, while a trade surplus for about three-quarters of those years meant that essential imports have rarely suffered. But Cristina Fernández de Kirchner’s challenge to recalcitrant creditors, funded by the absorption of 80 percent of the Central Bank’s reserves in the last six years of her presidency, changed all that as trade was no longer independent. consequences of monetary policy. In 2012, this had led Internal Trade Secretary Guillermo Moreno (he is a member of the OSP primary vote at 0.96 percent in the province of Buenos Aires last month) to insist on a dollar of exports for every greenback released for import purchases, although Argentina recorded an 11-digit trade surplus at the time. This policy has resulted in absurdities as extreme as the Nissan auto plant in Japan becoming great wine merchants while olive oil has come to have such implausible dealers as the Corleone clan.
Disturbed as Moreno’s policies are, there have been larger and more chronic follies in Argentina’s approach to trade. Perhaps the most important of these is at the other end of the trade balance, namely export duties (here Argentina is not unique in the world, as is commonly believed here, but probably nowhere else is this handicap for the main providers of foreign currency accompanied by such a monstrous exchange rate differential in a double whammy), the subject of one of the first columns this year.
But at least everyone applauds the importance of exports, if only for their aspects of dollar rotation, even those who do everything to hinder or even block them as with the ban on exporting beef from this. year (also the subject of this space when it was first introduced in May). Imports don’t have that chance – the mercantilist philosophy of maximizing exports and minimizing imports, which has faded in most countries of the world since the start of the industrial revolution, is alive and well here with shopping at the foreigner seen as the negative side of the ledger when not equated with social injustice. There is a reluctance to accept the simple truth that countries are more reluctant to buy from countries that do not buy from them. A large trade surplus and a small volume are rarely greater than the other way around because it results in a smaller economy and slower growth.
As gloomy as the current times are for importers, the future looks worse – not only will the priority of maintaining the exchange rate for the next five weeks at least be robbing them of dollars even for vital inputs, but when the lid is on. will come off with a major devaluation, imports will become all the more expensive.