According to an International Monetary Fund report released this week, inflation in Argentina could decline not only thanks to fiscal adjustment AND monetary policy but also of “the decline in corporate profit margins due to recessionary conditions and the elimination of market distortions”. And that the adjustment in the profitability of some sectors is due to the fact that in Argentina “In recent years, company margins have increased significantly in relation to salaries”.
So, the recession and the distortion correction, according to the IMF, would discipline these gains. The Fund expects Argentina’s economy to collapse by 2.8% in 2024, but if sector performance is not taken into account, the decline would be 5%.
The report staff report distributed on Wednesday, mentions in several parts of the work that during the Kirchner government there were incentives for sectors of the economy to benefit.
“Real wages (NEITHER: discounting the price increase) are 23% lower than in 2016, suggesting an increase in corporate profits and in a context of market distortions and limited commercial openness”.
“THE previous administration left, in addition to restrictions on the foreign exchange market, a system of multiple and extensive practices in the economy in the unprecedented price of the dollar that has led to serious distortions and incentives to live off income”.
“Inflation the prices of goods produced by protected sectors (e.g. textiles) far exceeded average inflation and especially in regulated sectors (transport and energy). The proposed relative price realignment should help correct these differences while reducing the profit margins of protected sectors.”
According to Indec, investment income in the Argentine economy has increased significantly since the pandemic. But not so the income of workers, which recovers but less.
Indec takes these measurements through the system of national accounts and shows the data in the Income Generation Account, where you see the distribution of GDP between wages and capital.
Surt then refers to another observation that the IMF included in the information report: between 2019 and November 2023 the price of clothing or food increased above average and this is what probably explains the increase in capital margins. The opposite will have happened in companies whose goods and services they produce have lagged behind the average of other costs compared to the market. For this reason, the stock market value of many companies and the average of the Merval in dollars have not increased in recent years even though profit margins have rebounded.
Finally, a crucial topic: the jump in the dollar gap at the end of 2020 it transformed people and companies arbitrageurs full-time full life. From the poorest to the richest strata and from SMEs to large corporations, the main business of the economy has become how to hedge against a possible devaluation. Investment and savings plans have been postponed. All tokens went to consumption and therefore took away the Central Bank’s reserves.
“There was a hedging effect, an increase in dollar prices, whereby importers who accessed foreign currency from the official market did not know whether they would do so again tomorrow,” says Francisco Ritorto, an economist at the ACM.
Both Martín Guzmán and Sergio Massa’s team were critical of Pesce’s handling of this issue. In 2022 Gabriel Rubinstein publicly stated that food profits were high, although he did not mention the issue of the gap.
“In Argentina there are companies that earn a lot and are worth little while in the world the opposite happens: They trade high and have much smaller margins”, comments a banker unofficially.
Will the Milei plan and the recession restore margins?
Source: Clarin
