Argentine inflation is like a runaway train, says economist

Argentina is once again experiencing an economic crisis. In the last week, the scenario was worsened amid protests by social and rural movements. Consultancies already project that inflation could reach 90% by the end of the year.

“It’s like those trains that go out of control at a normal speed, but end up accelerating at a faster and faster level”, he says, in an interview with Sheeteconomist and consultant Fausto Spotorno, 47.

On the other hand, he is skeptical about a risk of shortages, given the country’s role as a food producer. The problem, he assesses, should not affect essential items.

Regarding the neighboring country’s relationship with Brazil, Spotorno believes that over the last decade the political will to work together has been lost.

“It is true that, in the bilateral sphere, the antagonistic double Fernández-Bolsonaro did not favor us. But we also had several years of PT with kirchnerism that did not invigorate Mercosur either”, he says.

What will it mean for the Argentine economy if inflation reaches 90% at the end of the year? An inflation of 90%, as we are predicting, is another type of inflation, compared to other countries in the region. It’s like those trains that go out of control at a normal speed, but end up accelerating at a faster and faster rate. This will make it increasingly difficult to stop him.

This fact, combined with the enormous political weakness of the current government and the structure of “chopped” ministries (with the administration of the economy distributed in several portfolios), means that no one has the political strength to stop this problem. This will obviously have an impact on capital flight, further alienating foreign investment, in addition to worsening poverty.

Argentina often resorts a lot to price controls or freezing. Why insist on a policy that is so criticized? Is it possible to work in this case? None. Freezing and price controls have never worked in the history of Argentina or humanity. It provides temporary relief, but does not address the real problem. In the case of this soaring inflation, we were already coming from an inflationary process prior to the coronavirus pandemic, but which was aggravated by the high monetary issuance that the government promoted for policies to contain the impact of health measures on the popular economy.

The measures we know of that can stop inflation exist, but they are slow and generally unpopular, involving adjustments and fiscal responsibility. These are measures that have a high political cost that few have the courage to embrace.

The new economy minister, Silvina Batakis, promised moderate policies, but has just taken controversial measures, such as tightening the siege on the dollar even further by raising taxes on purchases abroad. How do you rate it? It’s one thing what you say when you take over, another when you actually start running the economy. His first statements were intended to calm the market. But this first measure already demonstrates that there is not such a concern about the difference between the official dollar and the “blue” [paralelo] such as preventing dollars from leaving the country.

As complicated as solving inflation is to contain the “blue” when it soars, isn’t it? The disparity between types of dollar is the result of a vicious cycle. When there is high inflation, those who buy products in advance to sell or to use in the industry need a reference of how prices will be there and for how much they will have to sell them to avoid losses. In the absence of another reference, this is the parallel dollar. That’s why with each shot of the “blue”, there are markdowns.

The vice president, Cristina Kirchner, argues that currency issuance does not cause more inflation. Is there any consistency in that? None. Under no circumstances will rampant issuance not cause inflation to rise. This can be tackled with policies to absorb the money issued through fees or policies to revitalize the economy. But this is not happening. There is too much money in the market, so there is inflation.

Do you think there could be a shortage? There may be, but in this Argentina has advantages over countries like Venezuela, which produces practically only oil and imports a lot of consumer goods in general. Argentina is a food producer. So there will perhaps be a shortage of items that are not essential, like whiskey, particular cuts of fish, items like that. We have a serious problem with coffee, which Argentina still imports a lot. But a scenario of empty shelves due to the impossibility of importation, I don’t think it’s possible. Argentina is a country that has a profile that allows it to have a more closed economy.

Can the Brazilian elections and economic situation impact the Argentine economy? There is always an impact of what happens in Brazil on the Argentine economy. What I see that has been lost in the last ten years is the political will to work in a more coordinated way between the two countries and within the bloc. A more flexible Mercosur, but with a common internal policy, would strengthen us all. But one does not see a spirit of integration based on pragmatism, but on ideological orientations.

Nor do I defend models like Chile’s, of total openness to free trade agreements, because it will always depend on the governments of the moment. Nor to dismantle the block. Released, we will go worse. In the case of the Mercosur countries, the customs bloc and the joint action make sense, but I don’t see a problem in making it more flexible, as Uruguay seems to be doing on its own. [o país está avançando num tratado de livre-comércio com a China, à revelia dos outros integrantes do bloco].

It is true that, in the bilateral sphere, the antagonistic double Fernández-Bolsonaro did not favor us. But we also had several years of PT with Kirchnerism that did not invigorate Mercosur either. We need to sit down with more responsibility and an objective to formulate common policies beyond the next ten years.

X-ray | Fausto Spotorno, 47

Economist and consultant, he is director of the business school at Uade (University of Argentina) and at the Center for Economic Studies at the OJF (Orlando J. Ferreres & Asociados).