Europe, South America Should Plan for a Hard Brexit

Argentine business leader José Luis Manzano is a former government minister with significant experience in the investment, media and energy industries. A Peronist, he served as Secretary General of the party and as majority leader in the lower house of Argentina’s National Parliament. He later served as Minister of National Security during the Carlos Menem administration. After his time in government, Manzano moved to the United States to pursue his studies but soon returned to Argentina to build his business empire. He currently has vast holdings in Argentina and abroad. Manzano is a keen observer of global political and economic affairs and an acclaimed international speaker who offers important insights. IEFA Magazine caught up with him to discuss issues on the minds of decision makers from Buenos Aires to Brussels. Among them: Brexit, US engagement with Latin America, and October’s Argentine presidential elections.

By John Yearwood

The G7 Finance Ministers recently agreed that big tech companies can be taxed locally, where they make their money. You’re deeply involved in the digital space. Does that decision concern you?

No. All the companies do a lot of planning about where they can allocate their activity to look for the better tax position. In fact, they should be taxed like any other company. It’s an obvious reaction from government because, let’s say you’re invented in San Francisco, most of your activity is in India and you chose to be taxed in the Isle of Man. It’s weird. I think you have to be taxed in San Francisco. Not in India and not in Man. It’s pure tax logic.

Do you think tech companies will agree with you on this?

No, I believe they’ll fight it. They’ll fight it but they know the plan is going into effect. Taxes should be paid where your work is allocated or where your operations are based.

The finance ministers also talked about Facebook’s plan to introduce the Libra digital currency. Many were skeptical. Do you think that the Libra will benefit the unbanked or underbanked in South America?

Facebook was already dealing with a reputational and legal problem and a political and regulatory problem due to the lack of protection of their clients’ privacy and the breaching of that privacy with Cambridge Analytica. They have decided to go full speed ahead to change the discussion. I believe they’ll confront a lot of troubles in Congress and local legislatures from different countries, even from the judiciary. If I was asked for advice, I’d say that they should wait until the Cambridge Analytica problem and the privacy issues have been completely resolved before moving into digital currencies. To me, it’s too audacious. People who couldn’t protect their clients’ privacy, I don’t think they’re a good central bank. Normally, central bankers are very boring and they wear ties. That makes them better at doing their jobs.

It sounds to me like you’re thinking that this Facebook plan is not going to fly.

I think it’ll fly. Instead of discussing privacy issues and Cambridge Analytica, people will be discussing the Facebook Libra. It’ll fly because the customer base is huge. It’s like populist parties. We don’t like every party, but they still fly.

Speaking of populist parties, let’s talk about the recently held European elections. Some observers had concerns about the strong showing by populist parties. What are your thoughts, particularly the impact on Brexit?

I think it’s going to be a hard Brexit and the new government will represent the feeling of the UK leaving. Obviously, it’s not something we’re going to like to see happen but it’s what will happen. It’ll be a hard Brexit and the new government will be very nationalistic. I don’t see how trade treaties with the rest of the world can compensate for a treaty with the EU. I really don’t know. I think the only way the thing can be sold is by going down this path.

What would a hard Brexit mean for Britain’s relationship with the rest of the world, especially South America?

It may be an opportunity for South America because we’ll look for new commercial partners. I think London will increase its lending facilities and commercial involvement around the world, maybe reduce some of its tariffs on South American goods. I don’t think a no-deal Brexit is a good thing for the UK but for South America, it’s an opportunity.

In South America, a trade agreement was recently signed between MERCOSUR and the EU. What benefits do you see for South America?

There was a mood of celebration because the agreement with Europe has been in the works for over 25 years. It opened a huge market for South America. Our economies are complementary. Obviously, some sectors are threatened, but those sectors have to make their voices heard and they have to move fast. They have time because the deal has to be approved by every local legislature in Europe. In the end, trade agreements increase trade, investments and growth. I feel very positive for South America and for Europe. In this time of protectionism, the signing of a trade agreement is a very good signal.

You mentioned some of the industries that feel threatened. There is some concern in South America about the auto industry. Do you see those industries ultimately benefiting?

We have to lobby for the auto industry, wine and olives. In fact, the President of Argentina said he doesn’t believe the deal is a threat for these industries. The approval process gives these sectors time to look for protection. It gives the opportunity for trade, but also for Latin American countries to access concessional levies from Europe. It also gives Europe an opportunity to compete with the Chinese market for opportunities to build infrastructure and trade with certain sectors in South America. I think it’ll be a big win-win for Europe and South America.

I know you’ll be affected personally, given that you own a winery.

We’re very small, but the thing is that Europe is a very large market. It’s very attractive. Then, obviously, there are subsidies and other incentives, but all of that is a matter of work, lobbying, making the case. But, when the movement of goods and services is integrated, people win.

There is a lot of debate these days about immigration. Have some of the Latin American governments failed their people, and what do you see as the solution to the surge?

It’s not a homogeneous situation. You have the case of Venezuela, where the migration issue originated in a humanitarian crisis. More than 3.5 million people have left the country. Maybe another million will leave in the next 12 months. It’s a humanitarian crisis. The thing that the US and every country should do is open their arms and receive them. Then you have the case of, for example, Honduras, where exclusion from the economy and lack of security contribute to migration. And you have the case of Nicaragua, where the very violent situation is caused by the government. I come from a country where we’re all immigrants. The US has a big immigrant origin. I don’t think the solution is to deport people or separate families.

There has been a lot of anxiety since President Donald Trump took office. Did you see that coming?

It doesn’t surprise me. You may be able to run the country in a more bipartisan or in a more cooperative manner. I have this ambivalent feeling that the economy is doing very well, that the respect for private investment and entrepreneurship is big and that is bearing a dividend, and on the other hand, that there’s a lot of tension on migration and minority rights issues. My question is, is this necessary? Maybe it’s not, I don’t know.

Some have said that the US hasn’t engaged with Latin America in a really meaningful way under President Trump. For example, no big picture proposals or extended visits. Agree?

I would disagree. I think they’ve engaged very deeply. The US has two or three values: one is democratic government, the second is market-oriented policies, and the third is military strategic alignment. They’ve done a deep alliance with Bolsonaro (Brazil), with Macri (Argentina), with Duque (Colombia) and with Guaido (Venezuela). They’re definitely pushing that agenda.

In Venezuela, many have called for authoritarian leader Nicolas Maduro to be removed, using force if necessary. Where do you stand on that question?

We have all been following the negotiations in Barbados and we would all prefer a negotiated, peaceful solution. That said, the humanitarian crisis and the three to four million refugees are a strong call for international action to precipitate a negotiated solution. The Guaido government has repeated several times that all options are on the table. The best solution would be a clean election.

In Argentina, the worst of the recession seems to be over and other indicators are improving. Do you see an easier path for Macri in October’s presidential election?

It seems like there is some recovery of the economy and that improves Macri’s chances of winning in October. That said, both the government and the opposition have moved to the centre, and to a more moderate position. The government picked Miguel Pichetto, a moderate Peronist, as the vice-presidential candidate, and Cristina Fernandez de Kirchner nominated Alberto Fernandez, also a moderate Peronist, as the presidential candidate. It looks like the country will try to renegotiate its obligations with the IMF in 2020 by staying the course of market-oriented policies

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