Rolando Domizi, a Hyundai salesman in Buenos Aires, has lately been spending a lot of time rearranging his showroom and checking on the parking lot in which his cars are stored. Last year, he was selling between twenty and thirty cars per month. So far this year, he has sold eight. “You have to do something to kill the time,” he told me. “There’s nobody coming through the door.”
Domizi did not suddenly lose his salesman’s touch. He is struggling because the government, trying to increase the reserves of hard currency that it uses to pay off foreign debt, recently introduced a car tax and devalued the Argentinian peso. Dealers now pay a tax of thirty to fifty per cent on many models, up from ten per cent in the past, and that cost is passed on to buyers. In 2013, people bought nearly one million new vehicles in Argentina, a record; this year, that figure is projected to be around six hundred thousand, according to ACARA, Argentina’s association for car dealers.
The tax was designed to discourage people from buying big or luxury cars, which the government hoped would in turn discourage imports and reduce Argentina’s trade deficit in the auto sector. The devaluation, which made imports more expensive for people paying in pesos, also increased prices—both of foreign cars and of Argentina-made ones, which are built from mostly imported parts. Back in December, a white Hyundai Genesis at Domizi’s dealership would have cost around three hundred and eighty thousand pesos (around fifty-nine thousand dollars). Today, the same model costs around seven hundred and eighty-five thousand pesos (nearly ninety-seven thousand dollars). Domizi told me that he has been desperately phoning former clients to ask if they might want to change their cars, but they hang up when he reveals the new prices.
The perplexing part of this is that, not long ago, the government was trying to get people to spend more—on cars and on other products—in order to stimulate the economy. It guaranteed annual wage hikes for members of influential labor unions, so that they would have more income to spend, and it required some businesses to freeze prices in order to insulate people from the effects of high inflation. In the auto sector, the government provided financing for purchases of new cars—for instance, by loaning buyers up to eighty per cent of the money. It also nationalized pension funds, and used the money to lend to car manufacturers and other businesses.
But the growth in car sales—and many other types of sales—relied on imports, which over time thinned Argentina’s trade surplus. It was a “fictitious, unsustainable boom,” Gastón Rossi, a former deputy economy minister under President Cristina Fernández de Kirchner, told me.
As the government ran low on hard currency, it devised the new policies in oder to reverse the rise in car sales. That kind of policymaking—a step in one direction, then a step in the other—has critics decrying what they call a reactionary approach. “They act like a fire brigade,” Rossi said. The government has also failed to address the problem of high inflation, which has already vitiated some of the gains of the devaluation. Because of this, economists expect the peso to slide further as the central bank seeks to protect its reserves.
The troubles in Argentina date to 2001, when the country defaulted on around ninety-five billion dollars of debt. Since then, international creditors have demanded prohibitively high interest rates. This lack of credit means the government must dig into its hard-currency reserves to import energy and service lingering foreign debt.
Recently, Argentina has tried to mend its lending relationships, but it is still in the midst of a decade-long dispute with private creditors. The U.S. Supreme Court last week declined to hear a case on Argentina’s responsibility in repaying those creditors, which means the country must heed a lower court’s ruling on its repayment obligations; this is expected to trigger payments to creditors worth fifteen billion dollars, according to Axel Kicillof, the country’s economy minister. The central bank’s reserves have fallen from fifty-three billion dollars in 2011 to less than twenty-nine billion dollars today.
The car tax and devaluation are only the latest of the Argentinian government’s efforts to rebuild its reserves. In recent years, some companies were permitted to operate only if they matched the value of their imports with exports. Arturo Scalise, who imports Mitsubishis, told me that he exported wine and farm-animal feed. BMW exported rice. Now, however, the car tax and devaluation have constrained demand, especially for expensive models, which discourages dealers from importing them.
The government has successfully cut its trade deficit in the auto sector. But lower demand has, in large part, led one manufacturer of car parts to dismiss staff, and some car factories, including those of General Motors and Honda, have suspended production. Now, the economy ministry has asked manufacturers to reduce their prices in an attempt to revive demand again. Carlos Cristófalo, an expert on Argentina’s auto sector, told me, “They chase after their problems, and they don’t find a solution.”
Photograph by Marcos Brindicci/Reuters.
