When a country has sectors with a high capacity to export, an abundance of dollars is generated, which lowers the exchange rate. This impacts the rest of the economic sectors, which find it difficult to produce and create jobs because imports become cheaper.. This phenomenon, in economic literature, is called “Dutch disease.” It alludes to a strong appreciation of the Dutch guilder that occurred in the 1960s when a large hydrocarbon reserve was discovered in the North Sea.
Argentina runs the risk of suffering from the “Dutch disease”. The government implemented laundering that produced a massive influx of dollars into the formal circuit of the economy. There is an expectation that, taking advantage of the benefits provided for in the RIGI, mining and energy production will expand, which will increase exports and avoid imports. Added to this is the very high competitiveness of the agricultural sector. The multilateral exchange rate (that is, the one that considers the currencies of the main countries with which the country trades) already reflects that the dollar is low in Argentina and it is likely that the phenomenon will deepen in the near future..
Faced with great export dynamism in agriculture, energy, mining and the knowledge industry: What could be the impact of a low exchange rate on the labor market? According to the Ministry of Labor, it is observed that:
– Agriculture, energy, mining and computer and knowledge services generate approximately 10% of salaried employment registered in private companies.
– Industry and construction create the 25% of registered salaried employment.
– Commerce and services explain the rest 65% of registered salaried employment.
These data show that Sectors with a high capacity to generate foreign currency (agriculture, energy, mining and knowledge industry) generate relatively little employment.: barely 1 in 10 formal salaried jobs. While the rest (industry, construction, commerce and services) explain 9 out of 10 formal jobs. This is an approximate distribution, since highly competitive sectors generate demand for the rest of the economy, but their impact is limited. The bulk of urban employment depends on sectors with less competitive capacity and, therefore, the delay in the exchange rate not only reduces their production but, most decisively, has negative impacts on employment.
There is a way to prevent the high competitiveness of some sectors from becoming a curse via the “Dutch disease.” The solution is not to devalue but to accelerate structural reforms. With the reforms, more sectors will be able to produce and generate jobs even with a low exchange rate. Eliminating distorting taxes, redesigning labor legislation to avoid excessive conflict and litigation, improving the transportation system and all logistics, promoting regulations that encourage competition and dismantle monopolistic practices will lower the costs of national production. In other words, The remedy to confront the “Dutch disease” is not to devalue but to promote structural reforms so that the costs of producing in Argentina fall as much or more than the exchange rate is reduced..
The opportunities to reduce costs and inefficiencies are enormous and many of the reforms are in the May Act. The way to counteract the delay in the exchange rate is by implementing the May Act. For example, absorbing gross revenues and municipal taxes with VAT would greatly increase the competitive capacity of many sectors. In a similar sense, until now the labor reform eliminated the multiplication of severance pay and gives the option of creating a severance fund, but by decentralizing collective bargaining at the company level, the competitiveness of the sectors could be greatly improved. intensive work.
The experience of the 1990s teaches that a relatively low exchange rate requires a very efficient economy. The decades after the 90s show that devaluation is not a solution but the path through which the general impoverishment of the population compensates for inefficiencies. In order not to repeat mistakes, it is urgent to urgently and comprehensively address the agenda proposed in the May Minutes.
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by Jorge Colina
