The big problem we Argentines have is recognizing various problems without identifying the main problem. We discuss inflation, debt, trade deficit without understanding that they are anomalies arising from the main problem we have been experiencing for more than seventy years, which is the fiscal deficit.
The trade deficit is the result of our low level of exports and this is due to the low or almost non-existent liquidation of the agricultural sector.
The next question is: why don't they liquidate the field?
To answer this question, we need to understand something basic that is becoming more complex than it should be. Every person follows his or her own interests. Every human being is naturally selfish and individualistic.
These characteristics are unchangeable. Consequently, human beings act according to their convenience.
From this we can understand that if it is not in the exporters' interest to sell at this moment, they will not do so. This situation leads to the problem of non-liquidation.
If the dollar is at a lower level than they think it should be or because they expect it to rise at some point, they will not liquidate until the rise occurs.
The exchange rate lag is caused by the high level of debt that the Argentine government is taking on. The large amount of foreign currency inflows, due to the debt, keeps the price of the dollar low.
Public spending that is not covered by our income is covered by debt, generating the exchange rate lag. This is the reason for the country's low liquidation. Exporters expect a rise in the dollar and/or its price, therefore, in the meantime, it is not profitable to sell their products today with the exchange rate lag.
In addition, Argentina suffers from other obstacles that work against exporters, such as drought, high soybean taxes and low international commodity prices.
In the last decade, the country experienced a historic record for commodities, which was a good justification for the withholdings, but today the price of raw materials has plummeted and it seems incomprehensible to support soybeans.
The reason why the Government could not fulfill its promise of lowering the 5% tax on soybeans was due to the high fiscal deficit.
The countryside therefore suffers from both high withholdings and low commodities. Another reason why we are losing competitiveness.
Exporters' advocates are calling for a devaluation, which could "temporarily" solve the problem of the exchange rate lag. Although it would be an incentive for exporters to liquidate dovisas, it would not be a sustainable solution. Argentina is an expert in solving its problems with short-term measures. One of them is the classic short-term devaluation without stopping inflation. Inflation is a dynamic, ascending evil that, if not stopped, will sooner or later reach any devaluation. For this reason, it makes no sense to depreciate the currency. When inflation reaches the devaluation, another devaluation will be requested. We will continue like this for more, without solving the underlying issue.
The only way to improve the trade deficit is to end the fiscal deficit, so the dollar can be free without being conditioned by debt.
In conclusion, as long as the Government continues to increase its debt, speculation in the agricultural sector will continue to exist and the trade deficit will not disappear in the country.
Author: Felipe Coronel de la Torre ([email protected])
Aduana News is the first Argentine customs newspaper to launch its digital version. With 20 years of experience, its publications and initiatives aim to provide the most relevant knowledge on customs issues in order to contribute to safe trade in the region.
