The Argentina of the two windows, for 40 years we lived in a time window where the interest rate was negative against inflation, this generated a very bad signal for the market, as working with other people's money could yield profits. Inflation created margins, we measured ourselves against negative financing rates, and any business we engaged in was viable as we would come out straight in everyday transactions.
This left us with the signal that the margin was achieved through stock accumulation, and not against the productivity of the project. This lasted for 40 years, it was almost the only way to view business, and any change was seen by journalists, opinion makers, merchants, industrial chambers, and economic agents in general as something negative in everyday life.
If we add to this a closed economy and the liquefaction of liabilities due to high inflation, everything generated profits that were fictitious. The entrepreneur accounted for costs in old currency and income in new currency, believing they were making a profit, distributing, and consuming capital. Nothing could be further from reality.
The new window forces competition in a different way
Since 2023, a window of an orderly economy has opened, with fiscal surplus, capitalization of the Central Bank, and an open economy, inflation drops from 12% to 1.7% monthly, credits are at positive rates, there entrepreneurs realize they are not productive. A legion of people appears advocating and petitioning for state policies that were not demanded when they were making money and accumulating capital in dollars in safety deposit boxes, or living beyond their means.
The closed economy was a price umbrella, with protection, the price ceiling was set by the less efficient local producer. This cost would not be validated with an open economy and much more modern goods. When the economy opens, the price ceiling is set by the imported product, those without the technology to compete fall by the wayside, small and unproductive scales are left out of the market. The population does not want the local phone, they prefer the latest generation imported one. The dynamics of business changes, currently local companies are stuck with the old business, renting movies on video cassette, typical of Blockbuster (a company that disappeared in a decade), while abroad they sell a Netflix subscription, which continues to dominate the market. The change is not an option, it is structural and inevitable. We all have Netflix, the cassette has disappeared.
The transition leaves companies trapped in a cost scissors
A small business that sells tradable products and has high non-tradable costs such as rent or services is caught in a price scissors that leaves it out of competition. The products they sell increase little due to external competition, and services increase a lot because they were subsidized, it is a scissors game for those businesses with little capital, soon they will be left behind.
The fact that many entrepreneurs are in trouble is not explained by their ineptitude, it is that the State gave them false signals about the domestic economy, subsidizing services, with negative rates against inflation, price increases, and devaluation of the peso that disguised their own mistakes. These poor signals were taken as permanent, but none had sustainability over time, as they led us to an economic degradation that was hard to bear.
