Expensive, those principles (by Martín Caparrós)

What follows is a translation of an article by Martín Caparrós on today's Crítica Digital (Caros, los principios) about the sweeping tax and capital smuggling amnesty proposed by Kirchner's government and currently being discussed in Congress. In dire need of fresh funds, Cristina is basically offering criminals a free pass to launder their money in Argentina, and inviting all those Argentinians who illegally sent their undeclared foreign currency abroad to take them back without paying taxes, dropping any legal investigations under way. [For some more background, see the American Task Force coverage.] Caparrós, once a leftist militant, again voices his disappointment with this supposedly progressive government, whose true leader (Néstor Kirchner) famously said he would never agree to check his principles at the door of the Casa Rosada.

The good thing is that we now at least know how much they're worth. Or rather how much they believe they're worth. (It may be, if anything, as in the classical sudaca joke about the best business deal: buy an Argentinian for what he's worth, sell him for what he thinks he's worth.) We now know, I was saying, the price. They're not cheap: they must believe their principles are better than they look — and they're charging a lot for them. The savings repatriation and tax moratorium proposal, which Congress began discussing yesterday, is that: a price label. They were supposed to have some principles: equality before the law, opposition to financial capitalism, a "new tax culture", a push towards some [wealth] redistribution by the State, an insistence on justice being made despite [purposeful] oversights. All of which crumbles when the government tells those who took away the money, those who evaded taxes, that there's no problem, that everything's forgotten. For a handful of dollars: various economists reckon that, on the best scenario, five percent of the Argentine capital that escaped might come back — that is, some six billion. That, if anyone believes them and brings in the bucks, which isn't a safe bet at all. With luck, the State could recover 10% of that 5%, some 600 million, and at the same time, of course, take advantage of the modicum of reactivation that money could bring to our economy.

That's what their principles are worth. Or rather the price of shitting on them: if you laundered money, if you evaded taxes, if you forged your bills to take home your "10% commission", don't worry, we'll fix it; and if you were in jail, you can now go home. If you stole 10 kilos of beef from the butcher's on the corner, or 80 pesos from some boy on a dark street, then no, this deal doesn't include you. Evading taxes is not stealing from one person — it's stealing from all of them, from the State which should spend that money on schools and hospitals for everyone, or at least for those who don't have them. Tax evasion is robbery worse than any other robbery: it's robbing those who have the least. These are the crooks this law wants to spare: the big crooks, the shirt-and-tie ones, the friends.

That's why this law is a full stop: a point of no return. If they pass it as it is, they won't ever again be able to speak of their principles: they will have sold them, under the excuse of a crisis that didn't exist days ago. A bit expensive, it's true: as in that bad joke.

The translation is free; the links are mine. Caparrós employs a few local references that may not be obvious unless you live in Argentina: the use of sudaca as a self-effacing slur; the soundbite por una nueva cultura tributaria ("for a new tax culture") which the Federal Tax Administration uses to advertise its fight for citizens' fiscal responsibility (which this moratorium turns into a mockery); the diego or "10% commission" — an euphemism for bribery; the expression punto final, which compares this obscene pardon for the wealthy to the law that halted investigations of the dictatorship's crimes. It just came out and I felt I had to share.

Musketeers of redistribution: Julio De Vido

Long time no write, sorry. I resume the translation of the Crítica Digital article titled Los mosqueteros de la redistribución ("The Musketeers of Redistribution"), which shows how the Kirchner administration isn't Robin Hood taking from the rich to give to the poor, as they arrogantly assert all the time.

… [T]he residential natural gas fee in Buenos Aires amounts to 30 cents per cubic metre. However, four million low-income households which have no access to the natural gas supply network are forced to buy [pressurized natural gas] containers at a cost of AR$1.70/m³, that is, almost six times more. Since the devaluation [of the peso, in early 2002] the residential gas fees have been frozen; but the price of the 10-kg gas container has climbed 275%, to an average of AR$30…. [Minister of Federal Planning Julio] De Vido authorized the deregulation of the gas container market, in which [the private company] Repsol YPF is dominant, and in exchange offered the so-called "social container", which is impossible to find at the price of AR$18 suggested by the State. Even if you could get that, the price (AR$1.20/m³) would be four times that of the network gas….

That is, the government forces the natural gas companies to sell their product at ridiculously low prices to a mostly middle-class public (and gives those companies a good excuse not to invest on surveying and expanding their network to less privileged areas) and allows Repsol YPF to charge six times more to the poor who aren't reached by the network, or who can't pay for a connection to it. (Until a few years ago my neighbourhood itself wasn't connected to the NG network — when it was our turn, we had to pay something in the order of AR$700 to get the pipes into our home; the equivalent price today must be three or four times as much.)

With more concern for fiscal health… in the last weeks Cristina's government started giving signs that it will unfreeze the utility fees. The astronomical growth of subsidies would threaten the fiscal balance if tax revenue were to falter in the future. … During the first semester [of 2008] the energy subsidies alone amounted to AR$8.2 billion, 295% than the same period [in 2007]. The announcement of hikes in the power fees will be followed by the slow thawing of residential natural gas fees.

The interesting thing is that the increases follow a segmented criterion: more [percent] increase for those who consume more. According to data provided by the power distribution companies, 7% of the high-income households account for 25% of the consumption. In the case of natural gas the concentration is similar.

If progressive [as in gradual?] adjustments had been applied two or three years ago, the State would have avoided a huge transference of wealth to the pockets of the less needy. Why wasn't it done before? De Vido used to explain it was not easy to identify the bills of the higher-income households, something acknowledged as possible only now.

More about this coming soon...

Income redistribution?

An example of why I don't consider Cristina Kirchner's to be a progressive government, and why the Kirchnerist mantra about their income redistribution goal is a big lie, and why I think it's OK if the middle- and upper-class heavier consumers are charged more for utilities: an article on Crítica Digital, titled Los mosqueteros de la redistribución ("The Musketeers of Redistribution" — Minister of Federal Planning and Infrastucture Julio De Vido, Secretary of Transportation Ricardo Jaime, and Secretary of Domestic Commerce Guillermo Moreno). I translate freely:

"This year, one million families with incomes in excess of AR$6,000 per month will receive a state subsidy of AR$750/month in the form of cheap power, domestic natural gas and fuel. This is the equivalent of five social plans [welfare payments] of AR$150/month, which are still received by little less than one million household heads under the extreme poverty line."

The minimum wage has been recently raised to AR$1,200, from an earlier figure of AR$980 established in July 2007.

"We have already written about the sales boom of natural gas-powered heaters for swimming pools, of the rage in 1,000-watt searchlights for the gardens of the most exclusive closed neighbourhoods, or the growth of the market of high-end diesel cars. Since nothing is free in economics, these subsidized prices are paid by the state, which this year will give away nearly AR$20 billion to compensate energy companies."

For comparison, the federal state collected taxes for about 17 billion in March and 24 billion in July, so this is like giving away a whole month of taxpayers' money. You could argue the subsidies go to the taxpayers, only they're not the same taxpayers. Most of those billions come from the IVA (our VAT), which is 21% over most goods and services (including food), so the poor pay a disproportionate amount of it, because everybody needs food, and most of what the poor buy is food. A smaller amount comes from a profit tax that leaves ample room for evasion, and that the government doesn't even try to collect. In fact, the government is about to exempt individuals with monthly wages over AR$3,300 (single) or AR$4,500 (married with children) from the profit tax, detracting from the total collection.

The government actually benefits from the "inflation tax". Every month it proudly exhibits huge and increasing tax collection figures, which is easy when your main source of revenue is tied to the prices of consumer goods. Coupled with INDEC's low inflation rates pulled from Guillermo Moreno's ass, it lets them believe or pretend that the country is growing fast, although that plainly happens only in nominal terms.

"From the total subsidies to the energy sector, the generous Argentine State will provide this year AR$9bn to subsidize the consumption of that higher-income social group. Incredibly, there are still well-off middle-class people who complain that the State "gives away" Jefes de Hogar welfare plans, which today are received by extremely poor households mostly headed by women. The 2008 budget for the Unemployed Heads of Household programme is only AR$1.8 billion."

Yes, many in the middle class are really angry that the poor "don't work, don't pay taxes and get money from the government", while "decent hard-working citizens" have to struggle to go on vacations or change the car every few years. I've heard borderline middle-class citizens demand that the government "sends those lazy bums to work", disregarding the fact that most of them are single women with small children, or young men who have no qualifications at all. This is the state's fault, but taking away their welfare payments is not a viable remedy.

"So as to dispell all doubt regarding the magnitude of the redistribution exercised by [Julio De Vido's] Ministry of Federal Planning: the nine billion pesos devoted to subsidize the consumption of well-off citizens are well above this year's budget for the Ministry of Social Development (AR$7.6bn); they're on par with the annual budget of the Ministry of Education (AR$9.3bn); and they represent 2.5 times the budget of the Ministry of Health (AR$3.5bn)."

This was just the first part of the article devoted to the "Musketeers of Redistribution", who (as you see) wield huge power over the lives and fortunes of Argentinians, and who are accountable only to the office of the President. If and when I have the time, I'll translate another part.

I want to believe but...

Just an example of why it's so difficult to believe in Cristina Kirchner's "redistribution programme": the chairman of the Rosario branch of the Argentine Construction Chamber notes that, of 4,000 popular homes the national government had vowed to pay for in Rosario during 2007, not a single one has been built so far. First they were cut down to 1,400, then the funds never arrived, and as of now "we haven't yet obtained a clear answer from the national government regarding the reasons for the delay… all we have is a promise, without details, that the construction of those homes will begin in the second half of this year." And of course, the budgeted prices of supplies and labour are completely outdated; updating them is a bureaucratically slow process and uses INDEC's fudged (and therefore useless) inflation figures. Considering the expediency shown by the Kirchners to deal with other matters bypassing Congress, the Constitution, and basic attempts at dialogue or consensus, it's hard to see why Cristina can't speed this up.

This report comes after Cristina granted an audience to Santa Fe governor Hermes Binner, who had criticized the handling of the farmers' crisis and asked for a better redistribution of federal funds. Yesterday, after the audience, Cristina gave a speech next to Binner noting that Santa Fe has received a lot of funds for public works, and how that shows in Rosario's growth and prosperity. Well, while it's true that we've received funds, we're still waiting for the national government to pay for the repair of a section of our coastal park that Néstor Kirchner promised to deal with in 2005 (!) and that will be finished no sooner than 2009 (hopefully). And most of Rosario's recent prosperity, as everyone over here above kindergarten age knows, is due to the money coming in from the nearby countryside, the construction boom being just one example. Put simply, when people have money to spend, they come to the big city and splash.

Yesterday, the President rubbed her figures on Binner's face noting that federal money transfers to Santa Fe had increased 30% in a year — which is true of all provinces, because that's how much tax collection increased in nominal terms, mostly due to inflation. She also claimed Santa Fe had received over AR$42 billion since 2003. However, according to our Finance Minister Ángel Sciara, the books only show AR$15 billion on all accounts. And the federal government is behind schedule by about AR$1 billion.

The national government has legal obligations — by law Santa Fe must receive 8.84% of the federal taxes, and that's not a grant, a gift, or in any sense something we must thank for to our most gracious Cristina Kirchner.

Retentive government

Papa K is raising the export tariffs for grains again. I think export tariffs (not import — export) are a unique phenomenon in the world. Here we call them retenciones, which means retentions. The idea behind not calling them taxes is that the government is not just keeping money for itself, but retaining a part of the "excess profit" that the farmers make thanks to the internationally high prices of commodities and the locally high exchange rate. This "retention" theoretically keeps local prices in check and discourages producers from selling all of it abroad and leaving the local market unsupplied (is that a word?).

That's the theory at least. In truth, what happens is that the farmers, even with a 35% tariff deduced from their sales abroad, are getting filthy rich, while screaming all the time at the top of their lungs that they're desperately poor, and that the big bad government is snatching away the bread from their children's mouths. So desperately sinking into poverty they are, they've been increasing their crops and setting higher yield records every year since 2002. One of these days I think I'll wake up and see my garden turned into a soybean field.

Soybean field in Buenos Aires Province. Original image by Alfonso.

One assumes that, if selling abroad with such high tariffs were no good, then the farmers would stop doing it. The local market is not big enough for soybean and sunflower, but then we do need other stuff. Like tomatoes and potatoes, for example. And beef and milk. You can't have cows munching on expensive high-yield pesticide-resistant transgenic soybean, can you? (Soybean is displacing other crops, as well as cattle farming. It's also displacing natural forests, and is being planted in soils that will quickly deteriorate. See "Argentina: la cuenta regresiva para el granero del mundo" [via Pehuen.org, in turn thanks to Chileno].)

The government is keeping a lot of money that it wouldn't be getting if it weren't for the high exchange rate. If the price of the dollar in pesos went down, the national state would be deprived of much-needed funds (in fact, the fiscal surplus would evaporate), and the farmers would also get a lot less in local currency. Since it's the government that props up the dollar artificially, the perverse scheme at work is transparent. The government and the farmers yell at each other while they support each other at the same time.

I don't have an ideological problem with export tariffs, like many of their critics. I think they're perfectly fine. They should be better implemented, probably, but they're not wrong per se. The rules are not the same here as in developed countries. In a country with a weak currency and a very small and underdeveloped local market, without export taxes, it makes financial sense to screw your own and sell abroad. And if the product has little to no added value, better yet, in the short term. Oh, farmers do have to invest a lot these days, but they're not advancing technology, they're just using top-notch off-the-shelf tech to seed, care for and harvest million of tons of plants. (Argentina builds and exports very fine agricultural machines, too. That's the way to go.) Retenciones make producers think twice and pay a little attention to the local market. In the case of soybean, which is not a local staple, tariffs should serve to stop farmers from turning the whole country into a massive monoculture field.)

The problem with the tariffs is that all that money ends up in the national state's coffers and doesn't go back to where it came from, or to where it's needed most. The crop-producing provinces get nothing for their efforts, and the other provinces (typically poorer) don't see the money of their rich cousins redistributed. Instead, the money funds the government's grandiose public works scheme (plus bribes for the minister in charge and overpriced items for his friends who win the bids) and its political machine.

Last Friday, the government sent AR$140 million (~US$44M) to the municipalities of Greater Buenos Aires, to be used at the discretion of their mayors. Legal (thanks to an obscenely dependent Congress who allowed the budget to be modified freely) but fishy. The GBA has been ruled by these robber barons and virtual mafia bosses since ever, and it was them who gave Cristina half the votes she got (many of which, for all we know, were bought and paid for). The GBA surely needs those funds, being the metropolitan area with the worst quality of life in the country, but it's obvious they're not being used to make life better for the residents. This week Papa K also sent AR$80 million to some provinces. You'll also remember, surely, how K cut ribbons of dozens of public works in various states of completion throughout the campaign.

This is the usual way of favouring your loyal servants before an election, and rewarding them after it. And it's possible only because the national government has a lot of money to spend, while the local governments have little. Santa Fe is among the provinces most harmed by this. Export tariffs are not redistributable by law like other national taxes, so our province, which produces and exports a lot of the country's grains and vegetable oil, is subject to the whims of the national government. Since Santa Fe is comparatively rich, however, it can (politically) afford to be fairly independent of those whims, and it's been punished for that. The new Socialist government, we hope, will protest more than the obedient Peronist one we've had for the last four years.

Countryside on strike

The agricultural producers of Argentina are on strike since last Sunday, and boy, the spits of venom are flying all over us. Minister Miceli gave a press conference calling the strike "ideological and political", and dismissed the claims of the producers regarding their contribution to the wellbeing of the country. The government has been intervening in (some would say interfering with) the beef market and, to a lesser extent, with the wheat-flour-bread markets, in order to keep prices from rising; and of course there are the retenciones, or export taxes, in place since the economic crisis exploded.

The economic juggling act is as follows:

1. Exporters take advantage of the high exchange rate (over 3 pesos/dollar) to sell at internationally competitive prices and gather a good profit. The ones most benefitted by this exchange rate are the agricultural producers.
   
2. The Central Bank sucks up the incoming dollars, keeping the exchange rate artificially high (over 3 pesos/dollar), so as to maintain the competitiveness of the exporters.
   
3. The government taxes exports, differently according to what exactly is being exported (some things are not taxed, others are taxed 20%). This is how it gets a sizable part of the total tax revenue.
4. The very success of the above strategy places it in danger, since the more competitive exports are, the more dollars enter the local market, thus pushing down the exchange rate.
5. Not only that, but the Central Bank has to emit pesos in order to buy dollars. This effectively devalues the peso and expands the monetary base, indirectly fueling inflation.

The problem arises from the fact that the producers would like to charge the same price internally than externally. Absent that possibility (since most Argentinians cannot afford dollar-priced goods while getting salaries in pesos), most producers prefer to export rather than selling within Argentina. The export tax is also an attempt to "convince" them, by making exporting less profitable, but in general, Argentine producers can still get almost 3 times more by leaving the internal market undersupplied and shipping their goods abroad.

The agricultural sector in Argentina, as a whole, has no reason to complain about profits. During the 1990s, when the exchange rate was fixed at 1:1, many invested in imported machines and increased their productivity, but then they went broke as their exports were uncompetitive. Now they have a government that keeps the exchange rate high for them, making it prohibitively expensive for most of us to get certain imported goods, but they still complain.

One of the points of contention is the government doesn't have a plan for the agricultural sector and doesn't help the smaller producers, who are being bought up by their larger fellows. Indeed, the soybean boom has created a depressing landscape in which a few hundred landowners with huge plantations employ sophisticated machinery and very few people to plant any available patch of dirt over millions of hectares with a transgenic monoculture, then to harvest it and sell it to China (mostly), while producers of less-favoured crops (including many regional specialties in the poorer parts of the country) are struggling to keep up, and falling back.

For some reason, the conservative wealthy elite of the countryside have managed to present this strike as a just cause, as the fight of the economic saviours of the country for a free, undistorted market. The truth, of course, is that if they had their way, the national budget would run a huge deficit and we'd be having milk, bread and beef at three times the current price -- those of us who could afford them, and even then, only as much as the producers did not manage to sell abroad (the EU, for example, buys quality Argentine beef at a very good price, but only a small fixed quota; and both the EU and the US burden their imports with tariffs and regulations to protect their own producers). The controversial Secretary of Internal Commerce, Guillermo Moreno (the price control czar, so to speak, of the Argentine government) put it bluntly: "We can't have food at international prices."

The last cause of anger for the countryside folks was the announced decission of the government to employ force should the roads be blocked by the strikers to prevent the traffic of grain and cattle from their sources to the markets (a threat the strikers have already made -- and they already blocked the Rosario-Buenos Aires Highway for a while). The opposition pounced on it, calling it a double standard (which it is), since the government refuses to clear the road blocks set up by the piqueteros in Buenos Aires and by the pulp mill protestors on the roads before the international bridges linking Argentina and Uruguay, which are arguably causing as much trouble, though of a different kind.

This certainly looks like it will be a rough year's end.