MercoPress. South Atlantic News Agency

Argentina: higher tariffs on capital goods, soft loans for industry and fiscal bonus

CFK promises counter-cyclical measures to keep jobs and help manufacturing

Argentine President Cristina Fernandez announced higher tariffs for capital goods and the extension until the end of the year of the “fiscal bonus” with the purpose of “sustaining current countercyclical policies” given the international economic crisis.

“Given circumstances--not in Argentina, rather in the world--it's imperative that we sustain our strongly countercyclical policies and accentuate them as in the case of the increase in import tariffs for capital goods” said Cristina Fernandez in a speech broadcast on national television Wednesday.

Starting in July, imported capital goods that compete against local producers will be subject to a 14% tariff. Imported capital goods that don't have a local substitute will face a 2% tariff.

The measure is aimed at neutralizing effects on domestic industry from “unfair competition” amid a slowdown in the global economy which is creating a massive supply of capital goods from out of the region countries and “where their economic activity level is dropping significantly”.

The ‘fiscal bonus’ which was up next July was extended until the end of the year “to sustain competitiveness in the sector particularly with those competitor countries with which we have no tariffs”.

As part of the deal companies that benefit from the tariffs will be required to keep their staff at December levels, invest in expanding production and offer goods at “internationally competitive” prices.

The president said the Industry Ministry will publish on its website a list of firms so the public can help the authorities make sure they are actually protecting jobs.

“We are demanding that the business sector respond by keeping jobs at the maximum levels of December, which is the seasonally highest [period] of employment” said CFK.

However in spite of Wednesday’s announcements, last May 22 Argentina’s questioned stats office Indec said that during April the import of capital goods had dropped 37%.

Cristina Fernandez indicated the government also plans to make cheap credit available for industry. Protective tariffs and the promise of low-interest loans are similar to the measures she implemented three years ago, when the 2008-09 global financial crisis. Back then subsidized loans to the automobile industry prevented large industrial firms from dumping workers.

The president, who won re-election with 54% of the vote last October, has touted Argentina's rapid economic growth and low unemployment as one of the main accomplishments of her administration. The economy almost doubled in size between 2003 and 2010, while unemployment stood at a multiyear low of 7.1% in the first quarter.

After expanding 8.9% in 2011, many economists predict little if any growth this year due to a sluggish Brazilian economy, years of double-digit inflation, and policy blunders.

The Argentine government has resorted to blocking imports and rationing the foreign currency Argentines can purchase to make sure enough dollars are on hand at the central bank to pay government creditors.

Those measures have sent a chill through the economy as factories face shortages of imported parts and the heavily ‘dollarized’ real estate market grinds to a halt for want of greenbacks.

In the same line of thinking, last month mining companies were informed they would be required to submit requests to the government 120 days before importing goods and set up an “import substitution” department to boost buying of locally made goods.

The mining companies operating in Argentina will have to submit quarterly estimates of their purchasing needs, which will be vetted by a special working group at the Mining Ministry.