This Monday the 8th, after half a year of legislative debate, the government of Javier Milei approved the Bases Law with great expectations in a market that awaits the recovery of foreign trade and a population that demands a lower cost of living.
On the verge of a possible new title in the Copa América, the Argentines also demand positive results in their economy. Since Javier Milei became president last December, the new government has applied drastic measures such as cutting public spending and devaluing the peso to set sail in that direction. However, no initiative has been as transcendental as the Bases Law, finally approved last week in Congress after tense debates.
The outcome of this chapter occurred this Monday, July 8, after the Milei government promulgated the Law through decree 592. The latter grants delegated powers to the Argentine president for one year and promotes an ambitious reform of the State. In general terms, this implies the elimination and modification of current regulations and the creation of new articles that aim to deregulate the economy.
However, in half a year of negotiations between the libertarian ruling party and the opposition led by Peronism, many aspects of the original project were discarded. For example, the preliminary list of 40 “privatisable” public companies was reduced to eight. Of this group, the majority belongs to the energy and transportation sector, while the most important companies such as the oil company YPF, Aerolíneas Argentinas, Banco Nación and public media will remain in the hands of the Argentine State.
Other points addressed did prosper, such as the introduction of a new labor reform and the discussed Incentive Regime for Large Investments (RIGI). The latter applies a series of tax, customs and exchange benefits to investment projects for three decades. It should be noted that, in parallel to the Base Law, Decree 593 was promulgated. It is a “fiscal package”, which reintroduces the income tax for 800,000 salaried workers, the reduction in personal assets and the money laundering. capitals.
However, despite the scope of its measures, the Base Law is far from applying immediate changes. This is stated by Rodrigo Benítez, chief economist of MegaQM, an Argentine company specialized in mutual funds.
“In short-term terms, the Base Law implies more than anything a show of political capacity to implement reforms and, in the long term, what the market expects is that these reforms can be implemented. So, I think it has more of a symbolic value and short-term tools for management than a direct impact on the level of short-term activity, where in reality the effects of these measures are going to be very gradual,” Benítez declared for AméricaEconomía .
However, the economist considers that the delay in approval generated uncertainty in the markets, because it implied an obstacle in the application of structural reforms, the only viable path for an eventual economic reactivation. Now, with the green light from Congress, Benítez believes that the new short-term priority should aim to solve the imbalance in relative prices and exchange controls. To achieve this goal, a fiscally sound public sector is needed. At this point, the fiscal package also becomes the protagonist.
“Argentina has accumulated many years of deficit and therefore, the fiscal package had to be approved to compensate for income that is being collected on imports and that in a long-term scenario, will not be in force. Because in fact, these import taxes expire at the end of the year. So, the government needed to have tools to make the fiscal balance sustainable in the short term, but also in the long term,” explains Benítez. This future projection is the central cause that motivated the government to request legislative powers in tax matters.
For Fernando Landa, president of the Chamber of Exporters of the Argentine Republic (CERA) and co-president of the B20 Trade and Investment Working Group, the “extraordinary powers” that Milei now holds by the Base Law are far from being dictatorial, because they prohibit the intervention of the other powers of the State, universities, as well as science and technology organizations. Rather, its range of action has foreign trade and attracting investments as one of its main axes.
“The law's ultimate goal is to improve Argentina's competitiveness. In this sense, it is reasonable to think that in the medium term this approach will have an effect on investment and exports. Now, overcoming the fall that has brought us to the lowest historical participation in international trade in 2023 will not be immediate. And we understand that the government's initial priority is to organize fiscal accounts and inflation, given the critical direction we are taking,” Landa declared for AméricaEconomía.
From his point of view, the head of CERA understands that the Argentine economic crisis has caused the Milei administration to make controversial decisions such as the restriction on capital movements, the settlement of export sales and the application of multiple exchange rates. .
“The main conditions for improving our shipments abroad undoubtedly derive from this. Of course, export duties are also an anchor for growth,” he added. These rights refer to the taxes levied on export destinations for consumption.
On the other hand, Landa highlights that the International Monetary Fund (IMF) itself has pressured in Article VIII of its founding agreement for countries to abandon this type of practices, because they stifle exports and foreign direct investment. However, the organization clarifies that these measures are viable if they are applied in critical situations such as the one Argentina is experiencing and on a temporary basis.
“We can affirm that the country has had an anti-export regulatory bias and this is demonstrated in the results: a drop in participation in trade, a notable impoverishment of the economic complexity of our export matrix, with a very high weight of primary goods. , and very low participation of SMEs compared to what is expected for developing economies,” warns Landa.
If the macroeconomic situation improves and focuses on regulations that facilitate trade, as well as investments in logistics infrastructure, Argentina could face a takeoff in exports.
The president of CERA highlights that the country has a younger human capital than that of developed countries, natural and energy resources, cultural industries and the knowledge economy that can enhance this trend. In a similar vein, Rodrigo Benítez points out human capital and natural resources as the strong points of the Argentine economy.
“Argentina has four key sectors that are historically competitive in most scenarios. We can mention the agribusinesses linked to the productive chain of the agricultural sector. Then you have the hydrocarbon sector with the Vaca Muerta formation, which has a very large export potential for the Argentine economy. We are talking about sectors that are dollarized; Therefore, in different scenarios they are still competitive. The third is mining, which is still in the development phase and finally, information technologies that have a strong capacity to generate dollars,” says Benítez.
THE IMPACT OF THE RIGI
As mentioned above, the RIGI is one of the great novelties of the Bases Law and perhaps its most controversial point. In addition to tax benefits, large capitals will enjoy protection against State abuses, for projects exceeding US$200 million.
Likewise, any initiative that falls under the RIGI can receive tax exemptions or reductions, as well as administrative facilities to approve and execute new projects. Its supporters claim that it is a necessary measure to attract large investments, while its critics call it a policy that harms small and medium-sized companies to the detriment of transnational companies. It is a policy that primarily targets sectors such as mining, energy, steel, tourism and infrastructure.
According to Fernando Landa, one of the assets of the new regime is the exemption of export duties for all companies that join it, within a period of two or three years. The CERA leader maintains that this is an important step to end a condition that is already rare in the world.
“According to the World Bank, 32 countries charge export duties. Only three countries have a higher load than Argentina: Guinea, Kazakhstan and the Solomon Islands. In a world where the countries with the greatest participation in trade apply increasing subsidies, the use of export duties in Argentina is paradoxical and continues to be negative for investment and employment,” Landa clarifies.
