Paolo Soro

Argentina is making progress in its path to advance its growth agenda

Argentina: Further reforms are needed to boost sustainable and inclusive growth.

The first OECD Multi-dimensional Economic Survey of Argentina underlines the achievements to date of the government’s recent and comprehensive programme of macroeconomic and structural reforms.  The OECD notes that the next challenges to be met will be strengthening the pillars of a more productive and inclusive economy, reducing poverty and inequality and improving the well-being of all Argentinians.

The Survey, presented in Buenos Aires by Gabriela Ramos, OECD Chief of Staff and G20 Sherpa, and Argentina Minister of Treasury Nicolás Dujovne, identifies a wide range of next steps for reforms that strengthen people-centred growth, and makes a call so that the necessary reforms to boost productivity and competitiveness of the economy,  such as the regulatory framework, product and labour markets reforms, tax policy, infrastructure, innovation, trade policy and financial market are also developed with clear objectives regarding inclusiveness. It made an additional call to ensure further progress on education and skills, and gender. The link between productivity and inclusiveness, which is referred as the nexus at the OECD, could have large pay-offs.

Aligning Argentinian policy settings in these areas with the OECD average could increase GDP per capita by 15% in 10 years, while reforms to align Argentina with Latin American neighbours Chile, Colombia and Mexico would raise per capita incomes by 8.5% over 10 years, the Survey said. Provided that policies ensure a people-centred growth, with specific policies that shield poor and vulnerable households from bearing the adjustment costs of change, these policy reforms could deliver substantial benefits for all Argentinians.

“Argentina has undertaken a courageous economic turn-about, improving its attractiveness to domestic and international investment.  But what matters most will be delivering greater well-being to the Argentine people,” Ms Ramos said.  “Inequality, poverty and informality are a drag on growth and should be at the centre-stage of efforts toward a sustainable and inclusive future.”

Macroeconomic policy should remain directed at ensuring sustainability and sound macroeconomic management, by bringing down inflation, reducing the fiscal deficit and improving access to credit, according to the Survey. To improve the efficiency of public spending, Argentina can phase-out energy subsidies while protecting the poorest households, rationalise public employment and bring about further cost savings in state-owned enterprises.

Revenue-neutral tax reforms could include combining lower thresholds where taxpayers begin paying personal income tax with a more progressive rate schedule, phasing out the provincial turnover tax and financial transaction tax, broadening the base of value-added taxes and making social security contributions progressive and better adapted to spur formal employment. An independent central bank with a simple mandate could make monetary policy more effective.

The Survey highlights the need to strengthen investment and boost productivity, which are the basis for sustainable income gains. Continuous reforms allowing greater competition across the economy, by removing barriers to entry and further opening to international trade, will boost productivity and reduce rent-seeking behaviour, thus improving distribution of income.

Reforms should be accompanied by programs designed to protect the poor and vulnerable and ensure that they see the benefits first-hand. A current focus on strengthening the social safety net and efforts to improve training and education are part of such policies, as is labour market support for affected workers.

Specific recommendations on the inclusiveness agenda include the call for Argentina to focus on improving the distribution of income, which is currently very unequal, with one-third of Argentinians currently living in poverty and an additional one-fifth at risk of falling into poverty. Supporting this bottom 50% is crucial to make any progress sustainable over time. The report encourages Argentina to combine existing poverty alleviation programmes with further efforts to reduce inequalities in the access to quality education, public services and quality jobs and recommends accelerating efforts to address gender gaps.

Improving education - and in particular reducing inequalities in access to quality education - is key. Improved teacher training and more targeted support to disadvantaged students is needed. Likewise, expanding pre-primary education and promoting flexible working time arrangements will meet dual goals of improving educational outcomes and boosting female labour force participation, which is low. Given that educational attainments of women are on average higher than those of men, this would allow a better use of human capital. Extending paternity leave and improving women´s representation at all levels in the public and private sectors through quotas or targets would also contribute to reducing gender gaps in labour force participation.

Public transfers to reduce inequality and poverty should continue to play an important role, together with stronger efforts to curb labour market informality, which affects one-third of the workforce, who suffer from low wages and no job protection. Scaling up training, employment services and incentives for small business development can simultaneously curb informality, boost productivity and improve job quality for all Argentinians.  

Source: OECD News

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