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Argentinean Senate Introduces Sweeping Soviet-Style Economic Plan

By: Belén Marty - @belenmarty - Aug 15, 2014, 11:02 am
Chief of the Argentinean Cabinet of Ministers Jorge Capitanich.
Chief of the Argentinean Cabinet of Ministers Jorge Capitanich. (@SenadoArgentina)

EspañolIn yet another aggressive move against private enterprise, Argentinean officials introduced a new bill to the Senate on August 5: the New Regulation of Production and Consumption Relations.

This legislation aims to replace the current governing Law of Supply by establishing limits on prices, production levels, and profit margins, and has already received harsh criticism from certain industries.

The Kirchner administration’s goal with this proposal is to “prevent abuse and the misappropriation of the value-chain surplus.”

The existing law has been in place since the military dictatorship of 1974, which established prison sentences for business owners convicted of “induced shortages.” The principal difference with the government’s new proposal is that it provides further state control over the market in the form of price controls. Once signed into law, it will legally codify the government’s current agreement with suppliers and distributors of products subject to the Careful Prices program.

“It is essential to observe the behavior of the price system and the extent to which economic concentration allows certain economic groups to abuse their dominant position,” reads the proposal.

In addition, the bill further defines the state’s role in “defending the interests of consumers in order to make the price and quality of services consistent with offers proposed by companies.”

Total Market Control

Article 2 of the bill would grant the Commerce Secretariat the authority, when “strictly necessary,” to “establish profit margins, reference prices, and maximum and minimum price limits at any stage of the economic process.” It will also be granted the authority to dictate policies governing the trade and distribution of production, and command the continued production of certain items.

The same article allows the secretariat to assign “volumes of production, manufacture, sale, or offering of services.”

Under Section E, it is granted the power to request “all documentation regarding the commercial transactions of businesses or economic agents” and allows the agency to “order the annulment of concessions, privileges, tax regimes, or special credits.” It further grants the Commerce Secretariat the ability “to seize, appropriate, and even sell goods and services that are scarce or in violation, without prior expropriation proceedings.”

In addition, Article 3 provides Argentina’s provincial governors with the authority to establish price limits within their own jurisdictions.

The bill also makes changes to the way certain fines and sanctions are levied. Business owners would be subject to fines and other penalties if they artificially or “unjustifiably” raise the price of their goods or services. They may also face sanctions if they destroy their goods or merchandise, or unjustifiably refuse the sale of their goods or services.

Penalties include fines up to AR$10 million (US$797,000), as well as the possibility of a forced closure of the business or company for up to 90 days.

Kirchner’s Blessing

In an effort to gain support for the bill, Commerce Secretary Augusto Costa held meetings with the directors of the Industrial Union of Argentina.

“With these modifications, we will have the legal tools to circumscribe the administration of commerce within the scope of consumer relations, while at the same time updating applicable fines and formalizing the Commission for the Defense of Competition.”

Meanwhile, Chief of the Cabinet of Ministers Jorge Capitanich stated that the bill falls within the confines of the Argentinean Constitution, citing Article 42 of the document specifically. The article states consumers have the right to the protection of their health, security, and economic interests.

Capitanich also asked for an “open debate” in the Senate, and says be believes the bill will “generate a regulatory framework to set prices aimed at promoting greater equality in the value chain.” He added that will help prevent the “concentration that denaturalizes the process of setting prices.”

Private-Sector Backlash

Jose Patiño, head of the political opposition party Union for All, stated that the debate over the bill must take into account whether or not it adheres to the Constitution.

He believes it is essential for the discussion to be centered around the freedom of trade established in Article 14 of the Constitution. “The point of laws is to regulate with the objective of guaranteeing rights under the Constitution, and this law does exactly the opposite.”

Iván Cachanosky, economic analyst for the Freedom and Progress Foundation, warns that the changes the government proposes to make with this bill are extremely dangerous.

“It represents a strong attack from the state toward the private sector, which the government should not carry out. If prices are high, it is because the government has relentlessly increased the money supply over the last few years. People trust the Argentinean peso less with each passing day because of the loss in purchasing power. It has nothing do with businesses being greedy. If this argument were true, that inflation is caused by greedy speculation by rich businessmen, then we should really worry. This would imply that all the other countries in the region, with the exception of Venezuela, have businessmen who are less greedy than ours, since the average annual inflation rate in the region is 4 percent,” he explained.

On Tuesday, the Coordinator of Industrial Food Products (COPAL) sent a letter to the president of the Argentinean Senate relaying their strong concern over the proposals in this bill.

“It is clear that this bill takes away a company’s initiative and ability to make decisions, not only harming production and investment but also employment and development of productive units, regardless of its size. The current bilateral agreements aimed at stimulating foreign investment signed by Argentina will be similarly affected, creating unnecessary, and unconstitutional international conflicts,” reads the document accessed by the PanAm Post.

Economist and businessman Gustavo Lazzari stated that “this law grants an almost Stalinist instrument to government that will generate anything but lower prices and quality products.”

José Urtubey, vice president of the Argentinean Industrial Union (UIA), was harsher in his comments and stated he would not go along with the bill: “It is inconsistent with private initiative,” he told La Nación.

Carlos Raúl De la Vega, president of the Argentinean Chamber of Commerce, said he was worried about the possibility of having a government authority capable of closing businesses and stated his organization will be evaluating how the bill would affect the rights of individuals to take action.

Translated by Pablo Schollaert

Belén Marty Belén Marty

Belén Marty is the Libertarian Latina, a journalist based in Buenos Aires, Argentina. She has lived in Guatemala, Jordan, the United Arab Emirates, and the United States and is a former candidate for local office with Argentina's Libertarian Party. Follow @BelenMarty.