Q-1: Mr. Mendiguren, I would like you to explain to our readers what entities the UIA gathers together and what UIA’s main objectives are. Furthermore, could you elaborate on your priorities as the President of UIA?
A-1: The Union Industrial Argentina is an institution that has more than 120 years. Carlos Pellegrini, an Argentinean president that promoted the industrial development of the twentieth century, founded it. This institution represents all the industrial sectors of Argentina. Its representation is divided in half by paper, car and hydrocarbons industrial sectors and by different country regions. Its objective is to defend the industrial interests amongst national authorities and other similar institutions like the Brazilian Industrial Confederation. On the other hand, this organization is divided into different departments that basically attend the most important matters of the Argentinean industrial activity. One of them works for the Argentinean world integration and is in charge of matters like the ALCA, MERCOSUR and the European Union. There are another important departments like the Economy Department, the Regional Economy Department, the Department of Small and Medium Companies, the Energy Department and the Environmental one. My objective as the President of the UIA is essentially to install a profound debate in order to obtain approval about the creation of a national project to integrate Argentina in the world. The last ten years of clear economic transformation were the result of a non-strategic project. Our ex chancellor, Guido Di Tella, has always said that the best strategy for the country was the absence of strategies. On the contrary, the best industrial policy was the lack of a real policy. The markets had to establish what was the most convenient strategy for Argentina. We do not agree with this point of view. We believe that the successful countries- in a globalized framework- are those that previously had created the necessary forums for the discussion of projects with real national identity. If Argentina does not want to be an object for other countries, it has to differentiate itself in something. This is how the integration would be reciprocal. Only in this way we can actively participate.
Q-2: A couple of days ago the future of the ALCA was discussed during the Quebec Summit. What do you think should be the Argentinean position about the ALCA? What are your actual demands to the government?
A-2: Argentina has to solve its competitiveness problem and then, we can start talking about the integration with the ALCA, MERCOSUR or the European Union. The productive sectors are less competitive as the result of the economic policies of these last years. That is why the country returned to its primary productions. Argentina has become an exporter of raw materials and an importer of all other added values. Argentina exports cotton to Brazil and imports the textiles. Argentina exports the leather to Brazil and imports the shoes. Argentina is exporting nearly 300 dollars per ton and imports an average of 1,500 dollars per ton. Argentina has always been a great producer of potatoes and now the country is importing 90% of the mashed potatoes that the internal market consumes. Argentina is a great food producer but it has unemployment and sub-employment problems. A 30% of the active population is suffering from these kinds of problems. On the other hand, lots of companies have left to go to Brazil. The productive sectors do not receive investments because they are not competitive and they have high internal costs. Nowadays, it is impossible to produce in Argentina. If Argentina does not solve this problem, it will not be able to integrate any international organization.. The minister of Economy, Domingo Cavallo, is now trying to solve this competitiveness problem but it is also necessary that the private sector could discuss what should be our strategy with the ALCA. There are some work teams from the public sector that have debated this but they have not talked with the private sector.
Q-3: Brazil agrees with Adalberto Rodríguez Giavarini and disagrees with Domingo Cavallo in negotiating the ALCA integration from the MERCOSUR. They are basically afraid of becoming only raw material and cheap work-force suppliers if they do not negotiate from a stronger position.
A-3: The Argentinean position is not determined yet because it is only a reflection of what the public sector thinks and the approval with the private sector is missing. The public sector changes with the different administrations but the private sector is always the same. This alliance is absent. Brazil is not against the ALCA integration but it has a clearer position. The Argentinean industrial sector agrees with their point of view. Brazil does not want to be a raw material supplier for the ALCA. The United States should be the one to bring technology, licenses and added values. Brazil wants to have a competitive manufacture industry to be able to compete with the most developed countries. So Brazil is asking for more time. There is a strategy beneath this idea. That is why this country is supporting a very strong industrial process and is subsidizing the entrance of new companies. The Brazilian Development Bank has a portfolio of 70,000 million dollars and is giving credits for the companies transformation. Chile has also discussed about the ALCA and knows what they want about it. Argentina did not generate that debate. The ALCA integration would have to increase our salary level and also be able to add value but not decrease costs. We have to be prepared for this. This approval also needs an economic impact model and some studies to analyze this situation.
Q-4: The minister of Economy, Domingo Cavallo, launched what he called the Competitiveness Law. One of the measures that the law contemplates is an increase of 30% in the custom tariff for the importation of consumer goods and a decrease to 0% for the capital goods. What do you think about these measures?
A-4: Cavallo wants to solve problems that Argentina had been denying until now. Our currency was overvalued but this matter was not taking into account because nobody knew how to solve it. Cavallo is the author of the Convertibility Law. When the Convertibility Plan was ratified in the year 1991, there were three requirements that had been established for its maintenance. First of all, Argentina was not able to have fiscal deficit. Then, it was necessary to maintain stability in the prices of products and services. Finally, it was essential to decrease between 20 to 25% the prices of the strongest sectors of the economy. After 10 years, we realized that the fiscal deficit has been doubled. The service sector that should decrease its prices in a 20% had increased them in a 104%. The productive and manufacture sectors increased its prices in a 9%. On the other hand, the cost of capital became very expensive for the small and medium size companies that had to pay four times more the international rates. That is why the productive sectors suffered a price distortion. Cavallo admits that Argentina has a problem of competitiveness.
| Until now, the country was facing the prices deflation without any success because the figures were descending but the costs had been impossible to face. For example, the prices for the public rates are adjusted to the American dollar and the American inflation has to do with our economy. The only things that were possible to depreciate were the salaries. There was a salary reduction but without any decrease on costs. The salary lost purchasing power because the prices of education, health and the financial sector did not decrease. People began to loose their jobs and, of course, they did not consume. The internal demand decreased and Argentina entered into a recession with no historical precedents. We lost competitiveness. Anyway, there are some economic sectors that had been profitable.
Q-5: The minister of Economy, Domingo Cavallo, predicted that the Competitiveness Law was going to eliminate the capital evasion as the Convertibility Law eradicated the hyper- inflation. In this regard, what do you suggest in order to reform the current tax system, which shows a high evasion rate, a low tax collection rate and its high consumer taxes?
A-5: We believe that Argentina needs a substantial tax reform. The system does not resist any more patches. The new tax system has to be very simple. It has to be composed by very few and not evasive taxes but, essentially, it has to be a promotion for the productive sectors of the economy. The actual tax structure has a clear anti-productive slant. Argentina burdens the productive income but not the financial one. On the other hand, all the countries try to give an award to the reinvestments with low interest rates. This is missing in Argentina.
Q-6: Which do you think would be the right measures to promote the reinvestments of the multinational company’s benefits?
A-6: The income taxes should decrease. The benefits that you reinvest are different from the ones that you recover because they have lower interest rates. On the other hand, Argentina does not burden transfers on shared capitals. Another important matter is that there is free entrance and departure of foreign currencies. There are no special taxes on the rotation of dividends. You can gain dollars and rotate them.
Q-7: Do you think that exports will increase with the measures announced by Cavallo?
A-7: The right question is if the policies that Cavallo will implement would improve the Argentinean competitiveness. If this happens, Argentina would be able to increase the exportation rate. We have now a very modern industrial park. We also have management skills for the production and modern machines that enable us to export very good quality products at rational prices. Anyway, Argentina needs to have better prices, lower the costs of services and also the financial costs in order to be able to export. The procedure of returning the exporting taxes is delayed in Argentina. Another obstacle is that the peso gets stronger in front of the dollar. The United States had an excellent economic cycle and our currency is tied to theirs.
Q-8: Do you think that the current convertibility of the Peso with the USD will be modified?
A-8: This is a very important future matter that will not be solved by now. Our currency is 33% overvalued regarding to countries like Germany, Spain or France. There is not any modification in the real economy to justify this situation. The dollar has been fortified because the American economy has had a great evolution. That is why we are not exporting to Europe. We are now buying food and products to Europe that we have never bought before. On the other hand, we cannot sell them the products that we have always sold them. Cavallo did not foresee this situation when he created the Convertibility Plan. I am sure that if he had thought about it, he would have created a more flexible outline.
Q-9: It seems that the industrial sector is supporting Cavallo and the financial sector is against him. At the beginning of the 90´s this situation was the other way round. Would you agree with this appreciation?
A-9: If Argentina wants to continue growing, it is necessary to solve its competitiveness problem as well as the unbalance that this situation has caused in our economy. Therefore there are sectors that would essentially be affected. Some financial entities are fighting against these changes. They do not want to get rid of the privileges that they enjoyed during these last years. If this situation does not change, this problem will not be solved. The Argentinean financial sector is very solid but they do not finance the production as well as the Argentinean development. This case is unique in the entire world.
Q-10: Mr. Mendiguren, you know that our readers are top executives and businessmen. What business opportunities can they find in the different Argentinean industrial sectors?
A-10: Argentina has excellent opportunities in the food, cellulose and paper industries. The regional economies have important niches such as wines and petrochemical, hydrocarbons, gas, mining and energetic sectors. On the other hand, Argentina has good quality cotton, leather and wool. We also have excellent human resources in marketing, communication and clothing industries. The fishing industry is recovering from a very irrational exploitation but we have a large and spectacular coast. This is also a very strong sector that was not well exploited. The iron and steel industry is in its best period and we are exporting very well to the United States. Although you have to remember that the first investments that reach the MERCOSUR come to Argentina because our economy is more predictable and also because we have the$best technical and work-force levels. The tourism sector has and will have a great development potential. We have Patagonia, Cuyo, waterfalls, mountains and urban tourism in Buenos Aires. Therefore, the hotel system is not prepared to receive these kinds of tourism. Argentina is an expensive country. If it were cheaper, tourism would probably increase. We are very confident about the solution of the competitiveness problem.
NOTE: World Investment News Ltd cannot be held responsible for the content of unedited transcriptions.
|
UNION INDUSTRIAL ARGENTINA (UIA)