Ha-Joon Chang is a South Korean economist who has gained prominence in the academic and business worlds based on his skepticism of IMF recipes and his advocacy of the Korean model as an alternative for countries that want to develop. In a zoom interview with bugler cHe shared his impressions after his recent visit to Argentina.
– During your visit you met the ruling party and the opposition, what did you talk about?
– Everyone was worried about inflation, drought and exports. I told them the most important thing is what to do next: you can ask the IMF or China for more money, sell more gas from Vaca Muerta, maybe the rains will improve next year and agricultural exports will grow, but they need to focus on the problems at long term. , which are the lack of investment, especially in research for development. It is necessary if we want to modernize infrastructure, build production capacity and increase exports.
– And if this is not done?
– They will have a recession like in 2001. There was a terrible crisis that year, the economy started to recover, there was a current account surplus between 2 and 4% of GDP between 2004 and 2010, and then we started to have a deficit of between 5 and 6%. This will repeat itself, if there are no changes, because Argentina invests 16% of its GDP when the average in upper-middle income countries is 31%. It’s skewed by China at 29%, but Argentina has a huge investment deficit. Between the 60s and 80s they invested almost 25%. There is no more “free lunch”, they need to discuss it now because it will be too late in 4-5 years.
– Do Argentine politicians share it?
– They know they are crucial problems, but I don’t know if anyone has a plan. Maybe someone is working on it. Politicians need a growth plan six months before the election.
– Are devaluation and rising inflation inevitable?
– If you devalue, exporters will be happy because they will sell more and importers will not because they will pay more for cars and luxury goods. The challenge is to find a level of devaluation that makes it possible to generate more exports without hurting imports too much. It’s important because you’ll need imported cars to rebuild the economy and boost exports. If you devalue too much, you won’t be able to do that, and if you devalue too little, the instability will continue. We have to find a balance.
– You argue that after the 2001 crisis reserves have accumulated and nothing has been done, what can the government do now?
– It’s worrying. There was a commodity boom between 2004 and 2010, partly due to strong growth in China. Argentina has generated a trade surplus, but has not taken advantage of it. For this reason they have a poor currency. Between 2004 and 2010 you generated additional investment due to the trade surplus, it was not sustainable and you returned to the previous level of investment, which suggests that the additional exports were not used for productive purposes. So now we need to generate macroeconomic space, devaluation, fiscal restriction or better still, a social pact that lowers inflation without shocks. You have to stabilize the economy, but also define what to do in the next five years.
– At the Plaza de Mayo event, Cristina Kirchner spoke about it and praised the South Korean model of restrictions on tourism and the industrial development of exports: is it possible to replicate it without low wages?
– South Korea had to do it because it had nothing to sell. In the 60s and 70s the only thing we could do was exploit the workers, sell cheap and inhumane labor to make T-shirts, worst of all. The point is, we continue to reinvest and export cheap assembled electronics; this initially required some subsidies because it was difficult to compete with Europe and Japan. In the 60’s you had an income 10 times that of South Korea, so it would be stupid to start working intensively since you have a highly educated population. You don’t need low salaries, but you stayed and you have to think about how you can be competitive in 10 years. Chile, Bolivia and Argentina have lithium, but maybe in 5 or 10 years it won’t be as valuable and batteries or other industries will need to be developed. In the short term, they may need exchange controls, Argentina has a significant deficit in tourism, they may try to reduce that spending with temporary restrictions.
– The government asks China for financial help, while negotiating an advance of funds with the IMF. Is it good to have multiple creditors?
– If you are looking for more alternatives, you are in a better position than in the 90s and 2000s. China is now a financier, there is the new BRICS Bank, the CAF for Latin America, there are potential sources like Korea. In the 80s, 90s and 2000s there was only the World Bank, you should consider all possible options.
– As for the IMF, there seems to be a tacit agreement with the opposition to maintain the programme, do you see any limitations?
– It’s a negotiation, it can always be changed and they can convince the Fund that by changing the conditions Argentina will be able to grow faster or export more. The US renegotiated NAFTA when Trump came to power and it is for a longer period than the IMF agreements.
– You warn that Argentina is a low-investment country, but companies require fewer controls and taxes to invest
– They’re wrong. If so, they should all go to Paraguay where the corporate tax rate is 10%. But companies pay 30% in Germany because the cost is lower for the service they get in infrastructure, scientific research, subsidies. State regulation is efficient. German companies are happy to pay more taxes.
– How can Argentina export more in a world where the United States blocks Techint’s pipelines?
– The United States and Europe have raised all these trade barriers more aggressively and openly, we have to accept that this will be the case. In the 60s and 70s, during the export boom, there were quotas and obstacles, the two subsidized their industries more aggressively than today, the countries that managed to export were because they produced quality goods at good prices . Now you can make joint projects with other countries or bet on less regulated sectors. Wealthier countries will use these measures to their advantage, as the European Union does by subsidizing its agricultural products at the expense of developing countries.
– Is the Argentine stagnation an isolated case?
– There is not only Argentina, there are other countries with similar problems such as Brazil and South Africa, which invest 18 and 17% of their GDP. They need to review their growth models, because they reverse it when they hit 25 or 30% in the 1980s. Argentina invests 0.5% of GDP in research, Brazil 1.2% and Sweden 3.4%. It has low productivity, depends on meat, soy and now lithium, while it has university and scientific resources and an industrial GDP of 15%. They need a social pact and industrial policies.
– Is there any current case of social pact?
– The world is polarized so I don’t have a recent example, but that doesn’t mean it can’t be there. Social pacts are historically a way to solve inflation and low productivity. Otherwise the shock is a bomb with a shock wave that collapses and has a social cost.
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Source: Clarin
