Argentina

Why is Argentina the most expensive country in Latin America?

The main reasons why Argentina is the most expensive country in the region have their roots in the recent and more distant past – inflation, taxes and fees, inadequate infrastructure, customs and expensive labor. The government is trying to provide relief to entrepreneurs and consumers, but the room for maneuver is limited in view of the commitment to reduce the deficits of the state budget.

In inflation, Argentina „refuses to be a normal country“ and deviates from the trends in the whole of Latin America. While most countries in the region are able to reduce inflation and keep it at single-digit values, Argentina's central bank had to raise the base reference rate to 27.75 % in October. Inflation is most reflected in food prices, which mainly affects the poorest.

Domestic companies react to inflation most often by „overshooting“ prices in order to protect themselves from the risk that prices will increase less than inflation and they will lose money on price changes. This leads to goods being unaffordable for consumers and manufacturers having to resort to two-for-one deals and offer long repayment periods for more expensive goods without increasing the price.

From the point of view of international comparison and the expression of domestic prices in dollars or euros, the situation is not improving, but rather worsening. High interest rates attract short-term financial capital to the country, which has flowed nine times more this year than investments in the real economy. According to some estimates, thanks to the high interest on financial operations, it is possible to earn up to 11 % in three months, which makes Argentina one of the most attractive countries in the world for financial operations. The state takes more from companies through taxes than their remaining profit: state levies reach 137 % in relation to company profits.

Corporate tax on profits is 35 %, but a fifth of corporations pay no tax (thanks to all kinds of exemptions)

The business environment is also destroyed by all kinds of fees, which ultimately have the same role as taxes, i.e. to fill the state coffers. One of the most criticized fees is the tax on depositing and withdrawing money to a bank account by check. There is a charge of 0.6 % for both depositing and withdrawing a check, so in total the complete transaction takes 1.2 % from each amount.

Taxes, according to various estimates, make up 38–44 % of the price of most food, again impacting the poorest residents the most.

High labor costs also have a great influence on the price level. The labor market is very rigid, it is practically impossible to fire an employee. If an employer wants to dismiss an employee, he must ask for approval not only from the trade unions, but also from the Ministry of Labour. If he properly substantiates his request, the ministry will give him approval, but then he will run into the unions, which have had a lot of power in Argentina since the days of Perón and Evita.

Strong unions push for wage growth, which often rises faster than the price level. In addition, the employer is obliged to compensate the employee with one salary for each year worked, which is downright murderous in the case of economic problems of the company. Taxes are also at a higher level than in neighboring countries.

The attractiveness of Argentina for our companies should gradually increase, however, it will only be a slow and gradual process. Even though Argentina is a distant and, at first (and second) glance, difficult market for entrepreneurs, we will continue to try to inform you about the main investment projects and conditions for starting a business directly in the country.

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