A price fixing law under debate in Argentina’s Congress will be used sparingly to protect consumers and won’t track similar legislation in Venezuela that has led to widespread shortages, the nation’s commerce secretary said.
The senate voted 38 to 27 in favor of the bill last night. The law, which must now be approved by the lower house, will allow the government to limit profit margins and set price ranges as well as establish minimum production levels.
A new agency will be created to monitor prices. As in Venezuela, Argentina is using price controls to try to slow inflation. Venezuela has expanded price caps on food products to include as many as 15,000 goods ranging from rice to toothpaste since November 2011.
Since then, shortages have mounted, inflation has doubled and the bolivar has lost 90 percent of its value on the black market.
“The fact that there’s a law doesn’t mean it will be applied like it is in Venezuela or that the consequences will be like those of Venezuela,” Commerce Secretary Augusto Costa said in a telephone interview from Buenos Aires yesterday.
Argentine business groups, including the Group of Six that represent industry, agriculture, commerce, banking and construction sectors, say the government is seeking to intervene more in the economy as inflation accelerates and companies face dollar shortages for imports.The move comes less than two months after Argentina defaulted.
‘Venezuela’s Footsteps’
The inflation rate rose to 38 percent in August, according to Buenos Aires-based Elypsis. The government hasn’t issued a figure for annual inflation since February, when it unveiled a new index.
“Argentina is following in Venezuela’s footsteps,” said Diego Giacomini, an economist at Economia & Regiones, a Buenos Aires-based consultancy firm. “You only have to look at the past eight years to realize that Argentina is on that path.”
Costa said that comparisons with Venezuela are disingenuous and the government is improving a law that has existed since 1974. While companies can be fined and be shut down for as many as 30 days at a time without a need for a court order, business owners will no longer face prison for not complying with the law, Costa said.
Nor will the government be able to freeze prices, intervene in companies or expropriate merchandise, he said.
Specific Cases
In May, after Argentina agreed to what it said were voluntary price accords with supermarket chains, the government fined suppliers including France’s Carrefour SA and Bentonville, Arizona-based Wal-Mart Stores Inc. as much as $4 million for failure to comply.
“What businessmen are coming out and saying is that the government’s objective is to fix all prices and profit margins in the economy - that’s not the case,” Costa said.
“What needs to be clear is that this will be for specific cases” such as abuse of dominant positions or speculation that generates shortages.
Business groups will probably appeal against the law in courts, delaying its application until after President Cristina Fernandez de Kirchner’s government is out of power at the end of 2015, said Daniel Kerner, head of Latin America research at the Eurasia Group.
While the current law was rarely used, the fact the government is revising the legislation shows it plans to increase its grip on the economy, he said.
State Intervention
Fernandez is returning to the interventionist policies after the July 30 default closed the door on an immediate return to global capital markets, Kerner, who covers both Argentina and Venezuela for Eurasia, said.
Argentina defaulted on its foreign bonds after a $539 million interest payment was blocked by a U.S. judge, who said the country must first compensate holders of debt from the nation’s 2001 default that successfully sued for full payment.
Fernandez shared views with former Venezuelan President Hugo Chavez on what the state’s role in the economy should be, Kerner said.
“There is a philosophical underpinning which is the idea that the private sector left on its own will never do the right thing and that the state needs to be the one to guide them,” Kerner said in a telephone interview from Washington.
Venezuela and Argentina have the highest borrowing costs in the region. The extra yield over U.S. Treasuries investors demand to hold Argentine debt fell 8 basis point to 729 basis points, or 7.29 percent, and rose 11 basis points to 1,162 basis points, or 11.62 percent, for Venezuela at 5:20 p.m.
Maduro’s Son
The son of Venezuela’s current president, Nicolas Maduro, visited Argentina last month and met with lawmakers allied to the government to explain Venezuela’s experiences with price controls, Ambito Financiero reported Aug. 26, without saying how it obtained the information.
Inflation in Venezuela has tripled to 61 percent in May, the last month for which figures are available for, from 28 percent in November 2011 when price controls were extended.
The central bank hasn’t provided data on product scarcity since January, when it said 28 percent of basic goods were out of stock at any time.
“If Argentina applies the law they’ll have to do it with a lot of prudence because the reaction is going to be to increase uncertainty,” Carlos de la Vega, president of the Argentine chamber of commerce, said in an interview.
“The law can only be effective for a very short time. It doesn’t correct the fundamental problems.”
bloomberg.com
The senate voted 38 to 27 in favor of the bill last night. The law, which must now be approved by the lower house, will allow the government to limit profit margins and set price ranges as well as establish minimum production levels.
A new agency will be created to monitor prices. As in Venezuela, Argentina is using price controls to try to slow inflation. Venezuela has expanded price caps on food products to include as many as 15,000 goods ranging from rice to toothpaste since November 2011.
Since then, shortages have mounted, inflation has doubled and the bolivar has lost 90 percent of its value on the black market.
“The fact that there’s a law doesn’t mean it will be applied like it is in Venezuela or that the consequences will be like those of Venezuela,” Commerce Secretary Augusto Costa said in a telephone interview from Buenos Aires yesterday.
Argentine business groups, including the Group of Six that represent industry, agriculture, commerce, banking and construction sectors, say the government is seeking to intervene more in the economy as inflation accelerates and companies face dollar shortages for imports.The move comes less than two months after Argentina defaulted.
‘Venezuela’s Footsteps’
The inflation rate rose to 38 percent in August, according to Buenos Aires-based Elypsis. The government hasn’t issued a figure for annual inflation since February, when it unveiled a new index.
“Argentina is following in Venezuela’s footsteps,” said Diego Giacomini, an economist at Economia & Regiones, a Buenos Aires-based consultancy firm. “You only have to look at the past eight years to realize that Argentina is on that path.”
Costa said that comparisons with Venezuela are disingenuous and the government is improving a law that has existed since 1974. While companies can be fined and be shut down for as many as 30 days at a time without a need for a court order, business owners will no longer face prison for not complying with the law, Costa said.
Nor will the government be able to freeze prices, intervene in companies or expropriate merchandise, he said.
Specific Cases
In May, after Argentina agreed to what it said were voluntary price accords with supermarket chains, the government fined suppliers including France’s Carrefour SA and Bentonville, Arizona-based Wal-Mart Stores Inc. as much as $4 million for failure to comply.
“What businessmen are coming out and saying is that the government’s objective is to fix all prices and profit margins in the economy - that’s not the case,” Costa said.
“What needs to be clear is that this will be for specific cases” such as abuse of dominant positions or speculation that generates shortages.
Business groups will probably appeal against the law in courts, delaying its application until after President Cristina Fernandez de Kirchner’s government is out of power at the end of 2015, said Daniel Kerner, head of Latin America research at the Eurasia Group.
While the current law was rarely used, the fact the government is revising the legislation shows it plans to increase its grip on the economy, he said.
State Intervention
Fernandez is returning to the interventionist policies after the July 30 default closed the door on an immediate return to global capital markets, Kerner, who covers both Argentina and Venezuela for Eurasia, said.
Argentina defaulted on its foreign bonds after a $539 million interest payment was blocked by a U.S. judge, who said the country must first compensate holders of debt from the nation’s 2001 default that successfully sued for full payment.
Fernandez shared views with former Venezuelan President Hugo Chavez on what the state’s role in the economy should be, Kerner said.
“There is a philosophical underpinning which is the idea that the private sector left on its own will never do the right thing and that the state needs to be the one to guide them,” Kerner said in a telephone interview from Washington.
Venezuela and Argentina have the highest borrowing costs in the region. The extra yield over U.S. Treasuries investors demand to hold Argentine debt fell 8 basis point to 729 basis points, or 7.29 percent, and rose 11 basis points to 1,162 basis points, or 11.62 percent, for Venezuela at 5:20 p.m.
Maduro’s Son
The son of Venezuela’s current president, Nicolas Maduro, visited Argentina last month and met with lawmakers allied to the government to explain Venezuela’s experiences with price controls, Ambito Financiero reported Aug. 26, without saying how it obtained the information.
Inflation in Venezuela has tripled to 61 percent in May, the last month for which figures are available for, from 28 percent in November 2011 when price controls were extended.
The central bank hasn’t provided data on product scarcity since January, when it said 28 percent of basic goods were out of stock at any time.
“If Argentina applies the law they’ll have to do it with a lot of prudence because the reaction is going to be to increase uncertainty,” Carlos de la Vega, president of the Argentine chamber of commerce, said in an interview.
“The law can only be effective for a very short time. It doesn’t correct the fundamental problems.”
bloomberg.com
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