Volume 43, Number 171,
October-December 2012
Argentina and Brazil:
Macroeconomic Challenges
Eduardo Bastian and Elena Soihet

At the beginning, the results of the two macroeconomic regimes were reasonably successful, when taking into account each country’s choices. In Brazil, where price stability was the priority, inflation rates were kept under control. In Argentina, where the priority was economic growth and industrial recovery, the goals were also met. Naturally, in both cases, there were negative collateral effects, but from the specific point of view of the established priorities, the two macroeconomic regimes were successful.33

Regarding the continuity of the two regimes, there are certain challenges ahead. In Brazil, the macro regime can be maintained without great difficulty in the short term. The problem lies in the effects maintaining the current regime will have on the industrial structure and export patterns in the medium and long term. There is an entire set of measures that must be taken to stop the continuous appreciation of the real exchange rate, as well as alternative ways to combat inflation that allow the country not to have to use nominal appreciation of the exchange rate. In this sense, there are a few possibilities, such as Serrano & Summa’s (2011) proposal to “temporarily reduce taxes on imports of basic goods with volatile prices that are visibly growing,” as well as to “impose taxes on exports of basic goods when their price in dollars increases significantly in a short time period to prevent these increases from being passed on to domestic products” (Serrano & Summa, 2011: 33). Another possibility — proposed by Modenesi et al. (2010) and Nakano (2011) is to increase the power of monetary policy by de-indexing financial assets, as these are still indexed to the daily interest rate.34 Finally, regarding nominal appreciation of the exchange rate, one possibility is to use capital control to ameliorate the appreciative effect that a big inflow of these resources is generating.35 In this regard the government has implemented some initiatives.36

In Argentina, the continuity of the current macro regime is much more complicated. Growing inflation is provoking real appreciation of the exchange rate, which is purposefully generating a tricky situation: despite the enormous differences between Argentina and Brazil’s macro regimes, the two countries are facing the same problem of real appreciation of the exchange rate, although due to different reasons and in different intensities. In Argentina, the problem of currency appreciation is that in order to conserve the current macro regime, it would be necessary to nominally devaluate the exchange rate. Because this option is not recommendable due to its inflationary effects, the other way out is to combat inflation that already exists in the country. The problem is that all of these options would face political challenges. The adoption of flexible export taxes will face fierce resistance from the rural sector, as already occurred in 2008. On the other hand, adopting policies of contraction and allowing nominal appreciation of the peso will not satisfy the industrial sector, which does not have the same instruments of governmental help as their Brazilian counterparts37 and moreover, claims that the real Argentinean exchange rate is very appreciated today. Finally, it is not possible to contain inflation through salary control, because besides the regressive effects of this type of policy, the unions are important government allies.

Because all possible solutions face political difficulties, the current situation is reminiscent of Canitrot’s ([1975] 1991) and Mallon & Sourrouille’s (1973) classical analyses, which described Argentina as a conflicted society 38 and indicated the difficulties that would arise when trying to put together coalitions and implement economic policies in the country.39 To summarize, in this context of conflict, the solution could perhaps be some income policy arrangement.40 In any event, the success of any proposed solution will naturally depend on some form of political pact.

33 Because this analysis does not include industrial policies and these policies affect variables like growth and inflation, it should be pointed out that these results cannot be exclusively attributed to the macroeconomic regimes.

34 According to the authors, this would be an unnecessary reminder of the times of high inflation.

35 Gala (2010) presents a series of relevant proposals.

36 There was a set of measures taken since 2010. In the fixed income market there was, since October 2010, an increase in the Tax on Financial Operations (IOF, Impuesto sobre Operaciones Financieras) on the income of foreign resources for fixed income of public and private bonds of 4% and 6%. These measures were made somewhat more flexible at the beginning of December of the same year. In the future market, for example, the iof was introduced at 6% in 2011 for some categories of bank loans and Brazilian companies abroad.

37 Argentina does not have a development bank comparable to Brazil’s bndes.

38 In this case, the problem is that the Argentinean society is typically more conflictive than others, and in particular, more prone to conflict than the Brazilian society.

39 In the context of a conflict-prone society like Argentina’s, Mallon & Sourrouille (1973) affirm that, “macroeconomic policies must ... be elaborated in such a way that allows mobilization of a support coalition of forces strong enough to sustain the government in power” (Mallon & Sourrouille, 1973: 270-1). On the other hand, Canitrot (1991) affirms that in the phases of recession, a new populist alliance arose between workers and the industrial bourgeoisie oriented towards economic growth, which lasted until the economy reached full employment. At that point, the interests started to enter into conflict, and the explosion of inflation aggravated this conflict. Populism would break with the industrial bourgeoisie, confirming a new alliance with the agricultural bourgeoisie based on a program of order and recession (Canitrot, 1991: 28-29).

40 Adopting the income policy is a solution suggested by De Paula (2011) and Amico (2010).

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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