Argentina: Doing nothing leads to self-fulfilling prophecy – 03/30/2023 – Market

For Gala Diaz Langou, 38, executive director of Cippec (Public Policy Center for Equity and Growth) in Argentina, there is a feeling in the country that nothing can be done in a context of so much uncertainty.

“But it is in these moments that we need to project the future and take action. If not, we end up validating this idea that there is a self-fulfilling prophecy. Nothing can be done, we do nothing and nothing happens”, he says.

How do you evaluate the increase in poverty, especially among the youngest, and its impact on the future of the Argentine economy? There are structural problems of various dimensions: social, economic and institutional. On the social front, the crisis predates the pandemic, when levels of poverty and indigence began to rise in response to a structural crisis in the economy.

Argentina has not grown sustainably for more than ten years, and the pandemic has only worsened the situation, widening social inequalities. The most affected in this process were homes with young children and teenagers.

In the upper class, there is a concentration of single-person households, with older people or couples without children.

Among the poorest 20%, there are a large number of single mothers and from broken families. For them, it is a huge difficulty to reconcile productive life, in the labor market, with family life, especially because of the children.

This interferes not only with the quality of life of these families, but with Argentina’s economic growth potential at the aggregate level.

We have more than 60% of young people living in poverty and only 2 out of 10 of them finish secondary education in the normal time and with basic knowledge in Pisa tests [Programa Internacional de Avaliação de Estudantes]. This has serious implications for the level of productivity we have today and will have in the future.

This affects Argentina’s possibilities to establish a development strategy, to achieve macroeconomic stability and to participate in the global economy.

The main strategic sectors for Argentina, such as agribusiness, energy, knowledge economy and mining, are also strategic for the world.

But we have not been able to leverage exports as we should have in order to improve our economic performance and stabilize the trade balance and fiscal deficit.

Almost the majority of Argentine children receive some type of state subsidy. Is this sustainable from a budgetary point of view, since the country has lived with fiscal deficits for decades? About 95% of children and adolescents in Argentina receive some type of benefit, directly or indirectly, such as tax exemption per child. Another 5%, which are precisely the most vulnerable families, are still excluded from any type of program. It remains to reach them.

There are, however, richer families that end up with large tax exemptions, and it is necessary, using the same current resources, to improve their distribution in a more progressive way.

In total, all these social programs represent between 1% and 1.5% of GDP, depending on the year. It is an adequate volume, especially if we compare it with those of other countries. But it is necessary to take into account that the pension system in Argentina costs 12 points of GDP, and of these 12 points, 7 are for pensions outside the general system.

They are what we call privileged retirements, in special and exception regimes. There are many pensions that exceed the minimum payment per retiree by 20 times. There are 3.7 million benefits of this type.

Among them, there are soldiers and Olympic medalists, lyrical singers from the Colón theater and mine workers, among others in regimes that allow retirement at the age of 45.

There are not many criteria for granting. In the end, almost three times the equivalent of the Argentine fiscal deficit is spent on these pensions.

Energy subsidies, both light and gas, have proliferated in Argentina in recent years to cushion economic crises. How to equate these transfers with a stabilization program? The problem is that these subsidies reach everyone who is connected to the networks [de gás e energia], without differentiation or progressiveness criterion. Something was planned last year to favor only the vulnerable more, but it was not implemented.

Last year, energy subsidies accounted for 82% of the fiscal deficit. In 2022, the State paid 79% of the cost of electricity and 71% of gas for all those connected to the network.

Most are in the richest strata. It means that we are funding the heating of swimming pools in wealthy neighborhoods. Many of the most vulnerable have difficulty connecting to the networks and continue to buy cylinders, which have fewer subsidies than gas in the network.

We are working on a concrete proposal that includes the implementation of a social tariff and the payment of the real cost [da energia] for those who can afford it, in addition to a compensating fund, as there are provinces that pay much more for energy than others. All things considered, we would need fewer subsidies.

With all the energy and household subsidies, are there Argentines going hungry? Yes. This issue mainly affects the most vulnerable families and the literature is blunt about how it affects not only the present of these people, but the construction of human capital in the future.

In Argentina, we are doing the opposite. We concentrate the worst conditions on families with children, and hunger is a concrete example of this.

There is a recent survey that better maps the dimensions of poverty than those of Indec [o IBGE argentino], which takes into account only people’s income. Adding other variables, it was found that 66% of Argentine children suffer some type of deprivation.

Argentina appears to need tough measures, such as staggering subsidies and tinkering with retiree privileges and the public sector. It’s possible? We are certainly in a situation that demands changes and the implementation of urgent measures, in several dimensions. All this in a context of very high uncertainty and distrust. This has led us to immobility, with nobody wanting to make decisions and face the costs that will be assumed, without the benefits appearing in the short term.

It is a problem we face as a country: there is a feeling that nothing can be done in a context of so much uncertainty.

But it is in these moments that we need to project the future and take action. If not, we end up validating this idea that there is a self-fulfilling prophecy. Nothing can be done, we do nothing and nothing happens.

---

X-RAY | Gala Dias Langou, 38

She is the executive director of Cippec (Public Policy Center for Equity and Growth). She has a master’s degree in Public Policy from Georgetown University (USA) and a degree in International Studies from the University of Torcuato Di Tella (Argentina).