Buenos Aires Times

opinion and analysis ECONOMIC QUESTIONS

Remembrance and problems in paradise

The officials under scrutiny will have played some role in an offshore fund suspected of tax evasion and/or money-laundering and in all cases will have parted company with the fund upon taking office in order to head off any conflict of interests, but the matter is not so clearcut.

Saturday 11 November, 2017

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Today is Poppy Day, honouring the war dead (with exactly one year now to run before the centenary of the end of World War I originating this commemoration, which happily will fall on Remembrance Sunday) and I was wondering how on earth I could work that theme into a column reserved for economic issues when that eccentric New England economist Dr Hale unexpectedly came to my rescue with his latest email consultations: “A week beginning with the centenary of the Bolshevik Revolution and closing this weekend with Veterans Day (whose centenary comes up next year) has set me thinking back 100 years ago, especially since my opinion differs from most regarding the importance of both the Russian Revolution and World War I in general.

“The latter is universally regarded as the ultimate in senseless machine-gun slaughter but the chances of a soldier dying in our Civil War (600,000 killed out of less than three million combatants) was actually much higher than in World War I (a toll topping eight million of the 65 million mobilised) despite far less destructive armaments – one man in five as against one in eight. I cannot explain why this should be so –perhaps medical progress in the half-century separating the two conflicts (both four years) outstripped the huge advances in firepower by saving many more wounded or perhaps trench warfare as against open battle spared more lives than generally acknowledged – but I just want to toss in those figures.

“My take on the Russian Revolution also differs although here I should give the credit to a Córdoba historian. My interest n your region actually began not in Argentina but Ecuador (must have been bananas, haha) when it adopted the dollar at the turn of the millennium, although I quickly discovered that Argentina had its own backdoor dollarisation called convertibility whose dramatic collapse shortly afterwards soon had me far more interested in you lot.

Anyway precisely then a think piece in an Argentine newspaper on the broad sweep of humanity up to the new millennium pinpointed 1917 as the start of contemporary history after ancient, classical, mediaeval and modern chapters – the world changed that year but not because of the Bolshevik Revolution which failed to stay the distance but because US entry into World War I marked the permanent end of American isolationism. “Permanent until Donald Trump, one might now think, but here we finally come to my first question this week (don’t imagine that I’ve managed to miss the Paradise Papers). Despite the open warfare declared by Trump against globalisation, it seems to be thriving – not only are most emerging markets growing but their export levels are the highest since the start of the decade. So if globalisation thus advances despite this isolationist discourse, does Argentina also have a mismatch between rhetoric and reality – does one of today’s few clear voices against protectionism come from a closed economy  structurally unready for globalisation?”

My reply:

“A recent private study, showing Argentina to have the highest labour unit costs in a representative cross-section of 25 economies comprising developed nations and emerging markets alike, would seem to prove your point, Dr Hale. The problem goes beyond an Argentine economy trying to be competitive and falling short – according to the traditional economic model stretching back even before Peronism to post-1929 import substitution, inefficiency and low productivity were positive virtues if they came in the form of labour-intensive industries, relished by Peronism for boosting trade union membership and voting fodder. Thus Argentina is one of the few non-Asian countries which still employs hundreds of thousands in its textiles industry while other sectors are vulnerable not only to similar competition but to automation likewise threatening those low-cost competitors. I fear that neither labour reform nor tax cuts nor other productivity improvements will suffice to banish this basic vulnerability.”

In midweek came an email pursuing a far more current topic:

“These Paradise Papers seem to me a bit like Harvey Weinstein – something which was always wrong but completely accepted as par for the course like the ‘casting couch’ has suddenly become utterly reprehensible. How do you read the fallout in Argentina?”

My reply:

“The seven Argentine members of the International Consortium of International Journalists (ICIJ) could doubtless tell you far more than I ever could but for what it’s worth, my opinion is that this is a classic case of 50 shades of grey. Sure, the tax evasion in these offshore havens as now exposed by the ICIJ (on an even bigger scale than the Panama Papers 18 months ago) is equivalent to the gross products of entire countries or even trade blocs (despite Finance Minister Luis Caputo’s description of the Alto Global Fund of which he has been manager as just a hedge fund ‘for friends and family’ as if it were a ‘mom & pop’ corner grocery). But these funds are not illegal as such and every company is on the lookout for any tax loophole going – they can always justify this as loyalty to their shareholders, even if poor corporate citizenship.

“At least two ministers appear mixed up in companies named in the Paradise Papers and more are likely to follow, given the ‘CEOcracy’ headed by Mauricio Macri. In all these cases the officials under scrutiny will have played some role in an offshore fund suspected of tax evasion and/or money-laundering and in all cases will have parted company with the fund upon taking office in order to head off any conflict of interests, but the matter is not so clearcut. The opposite of transparency, these highly discreet funds rarely pay salaries so that the connection can persist beyond the formal separation. Nor should these offshore funds be seen as only piling up money (whether notional or real) at a branch office on some tropical island – it is a matter of record that these outfits have participated in tenders and thus the contractual as well as the financial links of the ministers in the spotlight will need to be explored.

Rather more digging will thus be needed before placing these links in either the past or present tense. “All I can say for now is that after having failed to detect even the most minimal impact of the Panama Papers in last month’s midterm election results, any fallout from the Paradise Papers remains to be seen.”

(*) Michael Soltys, who first entered the Buenos Aires Herald in 1983, held various editorial posts at the newspaper from 1990 and was the lead writer of the publication’s editorials from 1987 until 2017.


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