The far-right government, by applying “the greatest adjustment in the history of humanity,” in the words of Javier Milei, is hitting Argentine industry. The critical situation of the industrial sector, a consequence of the collapse of consumption, exposes the most vulnerable flanks of the current administration’s economic policy.
Nine months after Milei came to power, the closure of companies and factories recalls the worst moments of the 1990s government of Carlos Menem, a politician admired by the current president. The cocktail, a mixture of destruction of factories, opening of imports and transfer of the population’s income to the sectors of economic power, is accentuating the recession.
The mega-devaluation of 54.4% in December, one of the first measures of the ultra president, caused inflation to rise to 25.5% that month. So far this year, recorded inflation is 87%, according to data from the National Institute of Statistics and Censuses (Indec) and the expected inflation at the end of 2024 would be 127%.
The data show a sectoral crisis that goes beyond the figures of the covid-19 pandemic. The latest industrial production index published by Indec, that of June, recorded a decrease of 1.6% compared to May and 20.1% compared to the same period of the previous year. The use of installed capacity stagnated at 54.5%, more than 14 percentage points below that of June 2023.
“We came to shrink the state”
“We came to reduce the state to increase your pockets,” Milei said on September 2, Industry Day, at the headquarters of the Argentine Industrial Union (UIA). As a metaphor, behind him were completely closed blinds. “For 100 years, they sold us the story that to have a prosperous economy, you had to trample on the dynamic and exported sectors, especially the countryside,” he said, adding like a mantra: “State aid has harmed the economy.”
Industrialists are worried about the recession and the opening to imports, aimed at lowering domestic prices and which could extend to food. On the other hand, department stores continue to support the neoliberal president for his promises of budget adjustment and labor reform, included in Bases Act approved in Congress.
Before Milei’s speech, the president of the Argentine Industrial Union (UIA), Daniel Funes de Rioja, had asked a timid question: “We can only value the effort to stabilize macroeconomic conditions, because inflation, instability, budget deficit and unpredictability are not good news for everyone. We are convinced that ordering the macro also leads to emphasizing the micro, since one cannot exist without the other.
Industry is one of the main sources of income for a large part of the population and small and medium-sized enterprises (SMEs) are the most affected by the destruction of jobs. As an example, the Fabio Hnos factory, founded in 1951, dedicated to bolts, nuts and washers, stopped operating due to the economic crisis. It is an industrial icon of Greater Buenos Aires.
Activity in the SME sector fell 17.8 percent year-on-year in July and accumulated a contraction of 18.6 percent in the first seven months of the year, according to data from the Argentine Confederation of Medium Enterprises.
“Towards industrialicide”
“We are heading towards industrialicide,” Carlos Cleri, a member of the May 25 Productive Movement, which brings together SME entrepreneurs and cooperative members, told elDiario.es. “We are seeing layoffs, early vacations due to the drop in demand. People are starting to cover essential expenses, such as food, transportation, medicine, electricity and gas. The value of the salary has been reduced with the devaluation. And retirees cannot pay for food and medicine,” he says.
A separate chapter is the issue of pensions. Milei vetoed an 8.1% increase in pensions and retirement benefits approved by a large majority in Congress. The minimum pension is 234,000 pesos (about 220 euros). In addition: the opposition failed this week to obtain two-thirds in the Chamber of Deputies to override the veto.
In this context, the governor of the province of Buenos Aires, Axel Kisillof, together with businessmen and representatives of sectors such as construction, automotive and textiles, among others, presented, during the Industry Day, the project of the Provincial Strategic Investment Regime under the slogan “In defense of the national industry.” The governor and leader of the center-left Peronism was on the opposite side to Milei: “We are announcing a regime that is the opposite of the RIGI promoted by the national government. “We cannot accept that the only way to receive investments is to prioritize, to raffle off natural resources and not add value.”
The Large Investment Incentive Regime (RIGI), included in the Basic Law, grants preferential treatment to goods imported by large foreign companies, so that they invest a minimum of 200 million dollars in mining, energy, technology, agroforestry or infrastructure. This system allows the investor not to liquidate the dollars of his exports: from the third year, he can leave 100 percent of the foreign currency thus obtained abroad. In other words, not a single dollar of exports will enter the Argentine economy.
Cleri, former undersecretary of Foreign Trade in the radical government of Raúl Alfonsín and former chief of staff of the Ministry of Economy and Production in the Peronist government of Néstor Kirchner, explains to elDiario.es his concern about a dark horizon. “When demand falls, because the middle and lower classes consume much less, the installed capacity begins to be used less and workers are laid off. It falls and we do not know where it will end, because we do not see a rebound scenario. In addition, the State has removed all support for the most vulnerable.
The Argentine government is accelerating the spiral of the crisis by eliminating subsidies to users of public services in record time: transport and the prices of essential goods are increasing. The economic depression, which has caused consumption to fall, is exhausting its natural power to regulate prices downwards and that is why the Minister of Economy, Luis Caputo, has announced a greater opening to imports with a 10-point reduction in the national tax, above all, to promote imports of food products and food inputs. It is paradoxical: Milei received in December the national tax of 7.5 percent and increased it to 17.5 percent.
The combination of imports and recession seems to be shaping the economic trajectory of the current government. The voices of SMEs, textile and toy companies warn that the lowering of the national tax and the exchange rate gap intervened by the government open the door to an invasion of Chinese products. The beginning of the end of “made in Argentina”.
