Argentina’s Private Sector ‘Miserables’

Argentina’s Private Sector ‘Miserables’

Days into Argentina’s strict Covid-19 national lockdown, one of the country’s largest firms, Techint, announced plans to lay off almost 1,500 workers. Paolo Rocca, CEO of the engineering conglomerate, said the quarantine had stalled construction projects throughout the country. Though he promised to re-hire personnel eventually, the decision provoked outrage from the country’s beleaguered government, as it grappled with unprecedented public health and economic crises.

Fernández Strikes Back

In response, President Alberto Fernández criticized Mr. Rocca as “miserable,” and suggested the country’s corporate titans should choose salary cuts over layoffs. “It’s time for you to earn less,” he said.

The public sided with Mr. Fernández; a poll by Rouvier & Asociados found 72 percent of Argentines opposed Techint’s layoffs. But the opposition criticized the president’s confrontational approach to large employers, who are suffering mightily from the coronavirus recession. Mario Negri, the leader of the Juntos por el Cambio coalition in Argentina’s Lower House, said the president was “not careful enough” with his words, and had “stigmatized” business at a moment when cooperation is essential.

Nevertheless, Mr. Fernández did not search for common ground with CEOs. Instead, he issued an executive order prohibiting “unfair layoffs” for 60 days. (The decree allows firms to reduce their payroll with union support, and Techint and the construction workers union ultimately agreed to the proposed layoffs in exchange for a costly compensation package.)

A People’s Bailout

Mr. Fernández is not alone in Latin America in adopting a populist tone towards big business amid the crisis. His ideological ally, Mexican President Andrés Manuel López Obrador, has chastised large firms and threatened to publicize a list of 15 corporate scofflaws. He has swatted calls for stimulus programs for large companies.

For Mr. Fernández too, the priority is bailing out working-class consumers and small- and medium-sized businesses, sectors that typically benefit from Peronism’s demand-side economics.

The government, for example, directed banks to offer low interest loans to businesses to prevent layoffs, as the quarantine has pushed many of these firms to the verge of collapse. Additionally, firms in the ravaged tourism and recreation sectors will be exempted from employer payroll tax payments.

By contrast, Mr. Fernández has proposed few measures for corporate Argentina. Large employers also enjoy a deferral of loan payments during the lockdown, and benefit from a program that subsidizes wages. But many companies say the measures are far less than they need. Despite greater buffers than small firms, and potentially better access to private capital, more than half of Argentina’s large companies say Mr. Fernández’s stimulus policies are insufficient, according to a survey by the Group of Business Leaders of Argentina. The consequences could be severe. In a survey by the Argentine Chamber of Commerce and Services, 71 percent of firms say they had not received assistance to stave off layoffs, and only 22 percent said they had accessed loans.

Eat the Rich

Even so, Mr. Fernández’s leftist coalition partners are looking for new ways to redistribute income, even as large firms flounder perilously.

The vice president’s son, Máximo Kirchner, leader of the leftist organization La Cámpora and the head of the Frente de Todos coalition in the Lower House, is pushing new taxes on the wealthy. Adding to the controversy, the proposed measure would also tax money repatriated under President Mauricio Macri’s tax amnesty in 2017, which attracted $117 billion in capital stashed overseas. It is not clear whether businesses would also be subject to the new tax, which Mr. Fernández supports but is opposed by key opposition figures, such as the Radical Party leader Alfredo Cornejo.

Vanishing Pie

In many ways, it makes sense to focus on the urgent needs of the poor, including the legions of informal sector workers with little savings, no access to labor protections and no teleworking options to preserve their wages. But should Argentina’s large employers stumble, the impacts would be widespread, and cut across social class.

The International Monetary Fund expects Argentina’s economy to contract by a stunning 5.7 percent this year. The depth of that recession, and the expected shallowness of the recovery, will be even worse should the country’s largest firms be excluded from stimulus programs, or burdened by new onerous taxes. Argentina suffered two years of recession before the pandemic, with unemployment and poverty rising. Large corporate layoffs, or even bankruptcies, would hardly improve the country’s economic wellbeing.