Argentina: Unease With Profit-Sharing Plan


By Antonio Guerrero


Kirchner: Hoping to mend fences with the unions

A controversial profit-sharing bill submitted to Congress by Argentina’s ruling coalition is becoming a proxy fight between the nation’s labor and business sectors ahead of next October’s presidential elections. Labor leaders say the bill enforces a profit-sharing provision already in the Constitution, but business leaders counter that it violates property rights and provides a disincentive for business owners to invest. The bill’s sponsors say final terms are still up for discussion.

Under the proposal, companies would be obligated to distribute 10% of annual net profits to workers. Initially, the law would apply to companies with 300 employees or more, though it would eventually be extended to those with at least 100 workers. Regulations would be determined by a council comprised equally of members of the public, labor and business sectors. The ruling coalition submitted three different profit-sharing bills that are now being consolidated. The proportion of profits to be shared could change before the final bill is put up for a vote next year.

Business groups allege the profit-sharing plan violates property rights by putting workers on an equal footing with shareholders, while also giving labor unions increased power over companies, particularly since they would be allowed to review companies’ books to ensure that payouts are correct. They also contend the move would increase labor costs and provide little incentive to increase investment or add jobs.

Supporters note that other Latin American countries, including Mexico and Brazil, have similar legislation that has not proven detrimental to profitability or investments. They are also mindful of the fact that Argentine corporates are making record profits, with bank profits alone rising 43% during the first eight months of this year. The Argentine economy is expected to grow by as much as 9% for full-year 2010, following a meager 0.9% expansion last year. This will be the largest economic expansion since 2005.

With the presidential elections less than a year away, the bill should help president Cristina Fernandez de Kirchner improve her somewhat shaky relations with the labor unions. Unfortunately for her, for the country’s economy to continue booming, she will also need to keep the business sector happy. It seems that, at least in this case, it will take three to tango.