beyondbrics

By Ian Mount

In most countries, a rising trade surplus is usually greeted as good news. But Argentina’s announcement on Thursday of a better-than-expected 7.2 per cent increase in its January trade surplus to $550m shows such how such assumptions can be deceptive.

Argentine exports rose a healthy 10 per cent to $5.91bn, led by grains, oil, and cars. But the surplus is up largely because of Argentine government restrictions on imports designed to save the country’s foreign currency reserves, not because of an export boom.

In recent years, domestic inflation of over 20 per cent a year has led Argentines to buy more imported goods. But paying for US dollar-denominated imports drains the country’s dollar reserves, which Argentina uses to pay back its foreign debt, among other things.

To slow the drain, the government of President Cristina Fernández de Kirchner has put into place a series of increasingly onerous formal and informal import restrictions, blocking the entry of everything from Barbie dolls to Jägermeister liquor, French cheese and industrial parts.

Importers have to apply for a license for each shipment they bring in, and on Thursday the local pro-government paper Pagina/12 reported that Secretary of Trade Guillermo Moreno met this week with 150 top importers to demand that they match their imports with exports of other goods, dollar-for-dollar. This follows similar dollar-for-dollar agreements the government forced on foreign car importers last year. To bring in $8m in cars, the local Porsche importer agreed to export an equal amount of wine, while Subaru’s importer agreed to export chicken feed and Mitsubishi said it would sell peanuts overseas.

The problem with such regulations is that they don’t work. Because of import restrictions, Argentines have suffered from refrigerator shortages, automaker Fiat SpA had to close a plant for several days because of a lack of parts, and pharmacies have run short of some medicines. And most economists say that dollar-for-dollar import substitutions are, at best, a way for those who already export to make a few pesos by selling their foreign purchase orders to importers who need to show the government export receipts.

“Absolutely not. It doesn’t increase exports,” Martín Redrado, a former Argentine central bank president, said in a recent interview.  “This is just a good business for exporters who are charging importers, say, an 8 per cent to 10 per cent commission for matching together and going together to the Secretary of Trade for them to be able to import what they need.”

In the hall of smoke and mirrors that is Argentine economic policy, then, a 7 per cent foreign trade surplus increase can almost be a bad thing. Most economists would call for attracting more investment in local production facilities, better education for engineers and other workers, and a long term industrial policy. But that would mean giving up some control over the country’s day-to-day movements, something the Fernández de Kirchner government is obviously loath to do.

Related reading:
Argentina: red tape for parts imports, beyondbrics
Argentina tightens import controls, FT
Argentina’s new year tariff hikes, beyondbrics
Argentinian carmakers may struggle to meet demand, beyondbrics