SOME NOTES ON THE
ARGENTINE
The recession that began in 1975 deepened during the following year. Gross national product declined 3.5% compared with 1975 (and 1975 GNP was down 1.4% from 1974). On the whole, the economic cycle evolved as follows: the recession reached its deepest level in July-August 1976, after which the economy stabilized and slowly began to recover. 10
ECONOMY
According to the November 1976 Prensa Economica, "the index of economic activity has risen 0.2% and now stands 3.5% lower than last year. This improvement is due to the upturn in agriculture and ranching. The index of industrial activity increased one-tenth of one percent and now stands 8.3% lower than last year. Industrial activity showed a new recovery in December, closing out the year at 7.9% below
75 levels (increasing 0.4% in December, exceeding the 1% increases in October and November). This greater provement of the index of economic activity in December abled the year to be closed out with a decline of only 1% (the index having risen 0.4 points in the last month of • year)." cess capacity in industry reached high levels (30%), reching the contraction of the domestic market, with a conquent decrease in production (of about 20-25%). Capital restment continued on the downward trend that has marked st years. Fixed capital investment in the first quarter of 76 was down 20.7% compared with the first quarter of 75. It dropped 11.4% during the fourth quarter, giving an nual rate of -16.2% (which must be viewed in light of the tical situation that prevailed in the last months of 1975). lation reached its highest levels in March and April (38% d 34.6% respectively), and then declined to 2.8% in June d 4.3% in July; it then began to rise again, reaching .3% in December (seasonall adjusted). In January there re increases in rents (100%) and the prices for food products, ectricity, gas, etc. According to the economic journal The view of the River Plate, the consumer price index was up .8% in January 1977 compared with December 1976. The creases by category were: food 30.2%, maintenance and uschold expenditures 15%, and housing 16.3%. It may thus considered that the 20% wage increase which had been anted previously and was to go into effect in January had ready been eroded in two months, even before it went into ect (since the cost of living increase for November and cember was 23.19%). always, inflation had repercussions on the distribution of come, the main "winners" being the ogricultural and ching sectors (prices for their products rose 458.4% during year, compared to a general price increase of 386% and 359% increase for non-agricultural prices). It was the aching sector that drew the greatest benefits (wholesale ces for cattle rose 721.9% during the year, while vegeta- products went up 335.8%). e second biggest winners were the industrial monopolies, in te of the decline in production. The losers, as always in ch cases, were the wage earners, whose incomes declined re than 40% compared with their pre-coup levels. The ge-eamers! share of the national income fell to less than %. According to economic journals, the contraction of the mestic market resulted solely from the fall of real wages, ile the official unemployment rate is now 4%, a misleadg figure since it leaves out disguised unemployment and der-employment. Private sources set the rate of urban unployment at 9.4%. The middle layers have also experienced decline in their living standards, as well as in the illusions ay had in the military coup. e external sector, a critical point which deepened the mage to the national economy in 1975, found a respite. e credit negotiations successfully concluded by the nistry of Economics may ease the bottleneck somewhat. e foreign debt rose 20% to attain $12,000 million. International reserves rose to $2,000 million, a result of the credits granted (contrasting with the reserves of December 1975, which were only $620 million, only 25% of which was fully utilized). The trade balance was affected by the recession, 1976 imports declining by about $1,000 million compared with 1975, resulting in a trade surplus of $790 million. Grain sales abroad in 1976 were 10.05 million metric tons higher than in 1975, an increase of 23% (which breaks down as follows: an 88.7% increase in wheat; 55% increase in sorghum; 23.5% decrease in corn). As for public spending and the budget deficit, the stand-by aid terms of the International Monetary Fund require that the budget deficit not exceed 3% of gross domestic product. This problem has still not been solved, despite the reductions in public investment and the aid of the national treasury to the state enterprises. An example is provided by the railways, which were granted only $300,000 a day in subsidies instead of the $2,000,000 a day estimated to be necessary by Grai Caballero, who is in charge of the state railway company. A reduction of 10,000 kilometers of track - 25% of the total rail network — is also envisaged. There is also talk of laying off 15,000 railway employees. Salaries for public employees have been frozen and the law on layoffs of government employees has been passed, although not immediately applied. The latest government decisions of January, however, could put it into effect again. The "rationalization" of the public administration has not been carried out yet. The budget deficit in 1976 rose to 7.8% of gross domestic product, well above the 3% called for by the IMF. State resources rose 39%, while the reduction in spending was 10%. A big part of this decline resulted from the declining real wages of employees in the public administration rather than reductions in the number of personnel. The public spending cuts eliminated one of the factors that could have been of fundamental importance in economic recovery, as public works and public investments have been used in some countries. The prospects According to the economic press, we are now seeing the beginning of an economic recovery whose basis was laid back in August-September 1976, heralding a 4-4.5% increase in the GDP (some estimates went as high as 7-8%). The Ministry of Economics has published similar figures. According to an inquiry of the FIEL(1) conducted among 110 factory managers in various manufacturing sectors, company heads are saying that "1976 sales prospects for industrial companies point to an increase of 30% in the volume of sales both domestically and abroad, and there are plans to increase investment 74% over 1976 levels. " According to the FIEL, sales next year should be 12% higher than in 1975, "opening a clearly ascending phase after two years of industrial recession. " Investments in 1976 were 46% higher than in 1975. The employers, along with the press in general, view 1977 with optimism, as a year of upturn.
11
ARGENTINE ECONOMY The obstacles The record harvest that was expected has run into difficulties. The wheat harvest was only 10,500,000 tons instead of the 13 million tons anticipated, reducing the exportable surplus to less than 5 million tons and slashing the final currency income from $720 million to $500 million. To this if must be added that the world wheat harvest hit record levels. The result is that high supplies are holding up normal sales contracts for the current season; sales are running behind stock levels. This aggravates another problem: the shortage of silos, a problem which is not insoluble but nonetheless dangerous, because the silos can preserve grain for only two months at the most. The measure the government has taken - increasing price subsidies as of February in the hope that possibilities will improve - only prolongs an uncertain situation. Beef exports stood at 529,000 tons in 1976, more than twice the 1975 figure of 252,000 tons. But future sales in the foreign market promise to be more difficult. The employers in the meat-packing industry are complaining about unprofitable exchange rates, in spite of their deliveries to the Common Market, which has increased import quotas from 250,000 to 350, 000 tons. We have mentioned the profit that has been made from the increase in the prices for meat products on the domestic market, the price of meat having increased 50% on the Liniers market(2) in forty days. An old demand of the ranchers has thus been realized in a short period of time: bring domestic prices into line with international ones (the strong increase in price scales is said to have entailed a decline of 40% in supplies destined for domestic consumption). These prices have reached such heights that the government is thinking about imposing quotas, and even threatening to import meat, a measure which is impractical in any event. The recent lowering of customs tariffs, which included a reduction in the maximum tariff, is intended, according to the Ministry of the Economy, to make local industry competitive with industry in the developed world by intensively increasing industrial productivity. The attempt is to lower the price of manufactured products and curb their inflationary tendency. Application of this measure triggered a wave of protests among companies which considered it inopportune, arbitrary, and impractical. If such a measure remains in effect for an extended period, it could result in the bankruptcy of many small and middle-sized national companies, resulting in an increase in unemployment and a reduction of national economic potential. A study by the trade unions also highlights the negative aspects of this measure. mitigate against investment to modernize obsolete equipment. As far as exports are concerned, the exchange rate and the low export subsidies entail a real exchange rate which makes the search for and/or conservation of new markets unprofitable. (Industrial. exports in 1976 fell short of their 1975 level, which was itself 24% lower than that of 1974.) 12
Government calculations forsee an inflation rate of 70
(and perhaps as high as 120%). These estimates are in problematical, because of various factors:
La) The upturn of inflation in December and perhaps lanuary (rents up 100%, wages 20%, with increases fo bread, gas, and electricity);
Mb) The budget deficit, which did decline, but not sufficiently;
c) The coming increases in fuel and utility rates;
d) The atmosphere of speculation which continues t vail on the stock market.
As a confimation of this tendency, we may examine ho state enterprise, Somisa(3), increased the prices of its
The new price scales entailed an increase of 9%, to w must be added the 12% increases applied on January 3 which totals a 21% increase in thirteen days. One imm repercussion was an 8% increase decreed by a tractor f
The government is trying to counteract the influence of decline in public spending and the inflationary effects the budget deficit by increasing its income. Although t law on layoffs of government employees has not yet gor into effect, its future application cannot be ruled out. The declarations on the improvement of real wages are credible given that these increases are absorbed even b they go into effect. In addition, the incomes policy of Martinez de Hoz team, which lends special priority to agrarian and ranching sectors, contradicts claims that + are real (and not simply nominal) increase in the worke wages. In fact, the workers' budgets are largely devote buying the products of this sector. As was pointed out by the January 3, 1977, La Opinior August 1975 it took six hours' work to buy a meal for a while the same meal today requires twelve hours' work. if the domestic market is not expanding, where will ind sell its products? The exchange rate is unfavorable on t foreign market. Domestic demand continues to decline. agriculture and ranching be able to spark a new econom boom? Since these sectors account for only 12% of GD (although they generate 80% of currency income), it ap improbable to us that an economic boom could be based exclusively on a boom in these sectors. Industry is facin market of limited purchasing power, reduced public spe and expensive credit terms. And in spite of all this the is optimistic! A new influx of foreign capital is unlikely, since the la foreign investment has not been approved. The economis employers, and the press have predicted an economic up This is possible, but dark clouds will have to be dissipate before it becomes a reality. Notes: 1. FIEL is the private instifute of economic information. 2. The Limiers wholesale meat market lies on the edge o Buenos Aires. 3. Somisa is a mixed state-private steel company.
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