Abandon the train of decay

The list is long, so the effort should be great, but so should its reward. There are several factors that threaten the competitiveness of Argentina, so the most serious ones will be highlighted here: The size of the State, the high tax burden, labor litigation and the high bureaucracy and costs of trade.

Aquiles de Argentina is the high public spending, which is above 40% of GDP in consolidated terms (Nation, Provinces and Municipalities). Although a slight decline has been observed in recent years, it is still well above the historical average of 30% of GDP. Furthermore, Argentina does not have the resources (despite its record tax burden) to finance these high amounts of public spending. The consequence: sixty years of fiscal deficit, which becomes a problem of a structural nature.

On the other hand, labor lawsuits continue to be a problem. While in 2003 just over 3,000 trials were initiated for ART, in 2017 the figure climbed to more than 130,500 trials. The same correlate was not observed in workplace accidents. This problem has begun to be corrected and in 2019 the figure was reduced to around 68,000, but there is still a long way to go in this matter.

There are more reasons that deteriorate Argentina's productivity. For example, high trading costs act as a competitive barrier as well. We can highlight import tariffs at a level of 14%, among the highest in the world. Regarding exports, the news is not encouraging either. All exported goods must pay an export duty. Furthermore, export duties were also applied to services. Additionally, bureaucratic costs continue to be much higher than in developed economies. Of course, all of this contributes to Argentina's competitive decline. It is no coincidence that in the Doing Business index produced by the World Bank, Argentina ranks 126th out of 190 countries. In other words, there are 125 countries where it is easier to do business before in Argentina.

Of course, with competitiveness problems of magnitude, doing business becomes difficult. As a consequence, the levels of foreign direct investment are minimal. Of course, who would invest in a country where the tax burden is record high and the probability of receiving a judgment (and losing it) is high? On the other hand, Argentina is not an example country when it comes to respect for property rights. It is enough to recall the recent case of Vicentín to show our terrible track-record on the matter.

Abandoning the divergence train is possible, but it requires effort. It will certainly be costly in some respects in the short term. However, failing to address these structural reforms to move onto the development train carries even higher costs. It is important for Argentina to maturely consider the structural reforms necessary to abandon the train of decadence once and for all.

(*) Chief Economist of the Fundación Libertad y Progreso