In just five months the movie turned around and from the flood of Chileans crossing to Mendoza to take advantage of the good prices we turned to long lines of Argentines going to buy “whatever.”
An IERAL report points out that The decrease in the purchasing power of Chileans and Brazilians to buy in Argentina was between 38% and 42% in the last five months.
The activity at the border crossing is evidence that in recent months Argentina has become expensive in dollars. But not everything is a consequence of the exchange rate delay. Specialists on the subject point out that the country has structural problems that make products here cost more than in Santiago de Chile, Miami or Madrid.
Own Javier Milei He joined this controversy on Friday by refuting those who talk about a late dollar. “Are we facing a case of exchange appreciation or a case of relative price rearrangement?” where Argentina is expensive in dollars given its tax and regulatory structure?”, he stated on the social network X.
For Fernando Marengo, chief economist at Black Toro, “Argentina is expensive and it is not an exchange rate problem.” There are several items that explain the problem: one of the main ones is taxes. “We have one of the highest tax pressures in the world. If it is measured against GDP it is not that high, but if it is adjusted for informality it is phenomenal.”
From Abeceb, the economist Elisabet Bacigalupo points out that in effective terms The tax burden can reach 70% on formal companies. “It is extraordinarily high and with a lot of distortions that must be analyzed well by good. “In cars, the extra Mercosur tariff, the luxury tax and the statistical tax cause the price to rise by more than 100% in some cases.”
Martín Kalos, director of the consulting firm Epica, points out that Argentina will continue to be expensive. “Monetary policy proposes a scenario going forward with a crawling peg of 2%. Even with an inflation of 5 or 6%, Argentina will continue to become more expensive.”
Marengo points out that we must also take into account “issues related to infrastructure, the deficiencies of routes in the countryside and problems accessing ports.”
At a time when the exchange rate delay is once again part of the discussions, Marengo says that “devaluation does not solve the problem of competitiveness, If that were the case, Argentina should be the most competitive country in the world because no one devalued it like we did.”
“With the price distortion plus the system of multiple exchange rates with an economy with the crawling peg at 2%, yellow lights are starting to turn orange. The problem is not whether there is a delay today or not, but the film”adds Bacigalupo.
“The real exchange rate is 42% down from the moment it devalued and that suggests that at some point there will be a change in strategy, crawling acceleration or some small jump,” he rounds off.
For Kalosan additional point is the lack of financing, “Companies are always using their own capital. If there was financing, that company would surely grow faster and offer more products.”
In this context, the Government began to authorize the entry of imported foods to put pressure on local prices. “In the short term, if more foreign products enter, that can help reduce prices for a one-time basis, then they will continue to move along with inflation,” says Kalos.
One of the problems that Kalos sees is that the current government gives them better access to the dollar and removes taxes from those who import finished products, while Local manufacturers do not have the same conditions to bring inputs. “We have to open the economy but we have to do it intelligently, because if not, the Argentine productive network will be destroyed and tomorrow it will leave you dependent on foreign production.”
“There is also the closure of the economy, the protectionist scheme and the very high inflation that generates distortive behaviors that fuel higher price dynamics,” says Bacigalupo.
And he also notes that “the implicit profit of companies has grown a lot in recent years. Due to inflation they look for hedging mechanisms and at the same time the price signals are confusing, You don’t know if something is expensive or cheap. The distortion in a regime of very high inflation is an important factor to take into account.”
Salvador Vitelli of the consulting firm Ledesma points to macro expectations. “We come with a certain inertia, accustomed to higher issuance and higher inflation and it is difficult to change this dynamic. Given this, the government shows fiscal and monetary anchors to show that this is being cut.”
Vitelli highlights that “We have a fairly inefficient labor and tax matrix that does not allow us to save through productivity and greater competitiveness.”then we end up pigeonholed in a scenario where Argentina is once again expensive in dollars.”
According to Kalos, another component is the lack of dollars. “The shortage of foreign currency generates less competition: those who have an imported product charge a higher price because they do not know the price at which they will buy it again. Argentine macro instability also plays into this, in many cases we become more expensive in dollars to prevent risks”.
How to get out
For Marengo “the solution is to reduce costs. We must try to advance structural reforms, lower tax pressure, for example withholdings and the PAIS tax, and eliminate tariffs. We must also open the economy and put aside the idea that we can produce everything.. “It is not true that we are protecting the national industry, what we are doing is making the consumer pay for the most expensive products.”
Bacigalupo says that “the government tries to make a rudimentary macro adjustment but then you have to do fine tuning. “There is no other option than a stabilization plan and we must work to define an exchange rate strategy in the short term.”
