Mercosur: Argentine minister accuses Brazil, Uruguay and Paraguay of pure ideological dogmatism

RIO DE JANEIRO, BRAZIL – Matías Kulfas, Argentina’s Minister of Productive Development, admits that Mercosur is going through “a tense moment”. Partners such as Uruguay, Paraguay and Brazil want more flexibility and lower external tariffs, and the last meeting of the organization a few days ago concluded with tensions.

“It is not true that Argentina refuses to reform Mercosur,” says Kulfas, during an interview with ‘El Pais’ in his ministerial office. “We want reform, but with time and in a pragmatic way. The idea that reducing tariffs as requested by Uruguay, Brazil, and Paraguay will modernize everything all at once is pure ideological dogmatism.”

Q – The Argentine Government has just announced measures to attract investments.

A – Yes, we will relax exchange restrictions in the case of large investments, above one hundred million dollars, in export sectors such as mining, energy, or agribusiness. When we came to the government, there was already the so-called “cepo” (debt trap).

We were suffering a balance of payments crisis, one more in our history, added to a problem of over-indebtedness. Now we want the exporting sectors to have access to foreign currency. We do not like restrictions, but we have no alternative, given the scarcity of dollars. The new tool goes in the direction of opening the “cepo,” and we hope that we will continue advancing along that path when exports improve.

Q – “We have to live with what is ours,” President Alberto Fernandez has once said about reducing imports.

A – The President does not have autarkic or nationalist ideas. He thinks about the international integration of the Argentine economy, and he thinks about Mercosur. The President is raising the need to get out of a model focused on financial speculation to bet on production and work. We want to promote foreign trade and receive foreign investments. The starting point of our government is very complicated, with a great macroeconomic crisis and the pandemic.

Q – Your partners in Mercosur criticize the high external tariffs (14% on average) and want to establish trade alliances with third countries freely.

A – It is not true that we do not want to change anything in Mercosur. We proposed to our partners a modification of the common external tariff, and we were very ambitious: we proposed that in about 1,800 items, the tariff should be reduced to 0%.

The fact is that our approach is pragmatic. The first thing is to give coherence to the tariff structure, which has become old because it was defined in the mid-1990s. It needs to be modernized. The question is how. The idea that reducing tariffs will modernize everything at once is pure ideological dogmatism.

We have to discuss in what proportion they should be reduced and in what areas they should be maintained. That takes time. In Argentina, we have experience with these things. At several moments in our history, we made ideological decisions, we reduced tariffs and opened our financial structure, and we ended up with a balance of payments crisis. That’s why we are cautious.

Q – Will things calm down in Mercosur?

A – We are betting on it. Mercosur is a good project, and problems are solved through dialogue. There are good and bad moments in any relationship, and in Mercosur, this is a moment of tension.

Q – “No industrial policy works if the macroeconomy is unstable.” You said this some time ago. Can you make industrial policy with the current macroeconomic situation?

A – We are moving towards stability. We have achieved more reasonable maturities for private debt, and we are now negotiating with the International Monetary Fund. The budget law contemplates a reduction of the deficit. We are recovering growth, even at higher levels than before the pandemic. The situation is normalizing, despite all the difficulties.

Q – Price controls on thousands of products have been extended until May. Many manufacturers are complaining. And inflation is on the rise again.

A – Inflation is an additional problem. It reached 53% in 2019, and we were able to reduce it to 36% in 2020, but at the end of last year, raw material prices started to rise globally, and we could not, like other countries, absorb that “shock” with exchange rate policy or other tools.

We had to impose the maximum price mechanism, which does not mean a price freeze. Import prices indeed went up, and that affected the manufacturers’ profitability margin. The problem exists. We want to end the price cap mechanism but without it being an inflationary pull.

Q – What effect can demands such as the one made by the powerful Truck Drivers Union, which demands indemnities for the entire workforce when a company changes owners, have on potential foreign investors?

A – We maintain a permanent dialogue with the production and labor sectors, and in recent months, we have hardly suffered any union conflicts despite the crisis. Of course, there are things we don’t like.

That is why, in the case you mention, the Ministry of Labor issued the mandatory conciliation. We do not share the Truck Drivers Union’s initiative because we do not endorse abuses, neither from one side nor from the other.

In Argentina, international investors must see what we see in Argentina, enormous potential in natural, industrial, and human resources. Naturally, investors yearn for predictability and macroeconomic stability. So does the Government.

Q – Does the lawsuit against the former government for getting into debt with the IMF help predictability?

A – The President has set a clear line of work: in the face of a problem of over-indebtedness, dialogue and agreements are required. That is the line concerning the IMF. In the middle, of course, there is a political debate.

The reality is that the previous government’s agreement with the IMF is extremely striking because it was the largest loan in its history. On top of that, it did not serve any purpose: it neither stabilized the macroeconomy nor financed development plans.

Given this, some sectors have raised the need to carry out additional investigations through the courts. All this does not mean that we are not going to pay. But it is necessary to pay with resources generated by growth, not with the previous government’s classic adjustment programs.

Source: El Pais