Argentina's congress approves supply bill; business frets

BUENOS AIRES — President Cristina Fernandez's campaign to bolster the state's role in Argentina's economy took a big step forward last week when lawmakers approved a bill that will allow the government to intervene in the pricing and output levels of large companies.

The house of deputies voted 130-105 on Thursday for the so-called supply law. It enables the government to set profit margins and confiscate merchandise from private companies judged to have hiked prices unjustifiably.

The vote came despite strong opposition from big business and the nation's key grain sector. The bill has already passed the upper house of congress.

Fernandez still has to sign the measure into law. This, though, is widely seen as a rubber-stamping exercise.

Fernandez's leftist government says the bill will protect consumers from unfair price rises and stem job losses in times of crisis. The administration has shrugged off opponents' criticisms that more state intervention will stifle the economy.

The bill "creates the conditions for regulations by the state in order to prevent large firms abusing their strong positions and holding back stock without good reason," Cabinet chief Jorge Capitanich told reporters.

Capitanich said the bill would protect small- and medium-sized companies, encourage investment and boost job creation.

Leaders from the agricultural, banking, industrial and retail sectors vow to sue to get the law thrown out on grounds that it violates private property and trade rights.

‘parasitic relationship’

In a marathon debate, opposition lawmakers accused the government of suffocating growth of the $490 billion economy.

"This government has a parasitic relationship with production and work because it feeds off them but simultaneously wants to destroy them," said legislator Carlos Brown.

The supply law is one of a series of interventionist policies announced by Argentina since it defaulted on its debt in July.

Rattled by the default, markets will watch closely to see how the new rules are enforced in a country where private economists forecast inflation may top 40 per cent this year as the peso tanks and the economy shrinks.

The farm sector worries that the measure will allow the state to grab corn and wheat crops if it decides domestic food prices are too high. Economy Minister Axel Kicillof said those fears were unfounded.

"The state does not want to intrude on the economy, but it does have to regulate the economy," Kicillof told local radio while the bill was being debated.

"The government does not have the ability or the desire to control all the comings and goings of the economy, all the prices, or go confiscate grains from the silos," he said.

But Martin Fraguio, executive director of Argentina's Maizar corn industry chamber, told Reuters the bill threatened farmers.

"This puts the entire corn chain — planting, harvesting, buying and selling — at risk," Fraguio said.

Argentina is the world's No. 4 corn exporter and No. 3 supplier of soybeans.

Separately, the government expects the economy to grow 2.8 per cent in 2015 despite the recession gripping the country.

In its annual budget proposal to Congress, the government forecast the country would return to growth next year and slash annual inflation to 15.6 per cent.

Economic analysts are forecasting the economy will shrink at least 2 per cent this year.

Annual inflation has topped 20 per cent since 2007.

The South American country has seen sluggish consumption and industrial output in recent months.

Its economic woes have been exacerbated by its $1.3-billion debt dispute with two hedge funds that won a US court ruling blocking the country from servicing its debt without paying them.

The row forced Argentina into its second debt default in 13 years in July.