Argentina struggling - again - with inflation | Americas| North and South American news impacting on Europe | DW | 14.02.2014
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Argentina struggling - again - with inflation

Recently, in Buenos Aires, there was no ketchup to be had for days anywhere in the Argentine capital. Rigid foreign exchange controls not only made US dollars scarce, but also import items like tomato sauce.

Simple, plain yogurt: Up until a couple of weeks ago it was considered a basic foodstuff in Argentina. A cup cost two pesos (19 euro cents) in the supermarket. Since then, however, the fermented milk product has become a luxury item.

The same cup of yogurt now costs 7.35 pesos (69 euro cents) at the checkout counter - a price increase of 263 percent. Numbers like that make even inflation-hardened Argentinians dizzy.

Twelve years after the country went through bankruptcy, Argentina is now facing the next crisis.

Empty shelves

Argentine peso devalued to 8,000 for one US dollar

In late January, the peso was devalued to 8.0 for one US dollar. The black market is already offering 12.

Ever since President Cristina Fernandez de Kirchner devalued the peso by 23 percent in January of this year, prices have exploded. On average, food prices are 50 percent higher; household appliances have shot up 30 percent; car sales have come to a standstill.

Many ordinary items of everyday life cannot even be found on store shelves because the producers cannot cover their costs. Imported parts or ingredients are too expensive because, as a rule, they have to be paid for in dollars, which are hard to come by, despite a loosening of state currency controls.

The circumstances have already led to bizarre situations: In the 200 restaurants of an American fast-food chain, for example, there was no ketchup for days. The tomato sauce is imported from Chile and has to be paid for in US dollars. The supplier refused to accept the Argentine pesos offered by the chain.

Scapegoat supermarket

President Kirchner's government also urgently needs dollars. On the one hand, the country still owes $10 billion on loans it received to get out of bankruptcy in 2002. On the other hand, the import of oil and gas costs Argentina some $13 billion a year. The central bank's currency reserves have reportedly melted to a mere $29 billion.

Cristina Fernandez de Kirchner

Economists blame President Kirchner for failing to act

The government has responded as it always has to the galloping inflation. State intervention and controls are supposed to keep prices at a tolerable level. Prices for certain goods are to be "frozen" - by decree.

Volunteers from Kirchner's party youth organization, La Campora, patrol supermarkets to check for breaches in price controls. Some goods, whose prices have not been frozen, are getting more and more expensive - however that seems to play no role. A deal with the pharmaceutical industry has led to a return to the price levels of January for 18,000 medicines.

Economists, such as Juan Jose Llach, have called Kirchner's economic policies "archaic." "We have a problematic situation because of our own mistakes," he says. "The devaluation was unavoidable, but when that's not accompanied by a bundle of other measures, it is not a solution," he explained.

In a guest opinion piece for the Spanish daily, El Pais, the businessman and co-founder of the Ibero-American Forum, Ricardo Esteves, said that to lower its national deficit, Argentina must open itself up to foreign investors. "In the current context, all the measures are either useless or even harmful, when the deficit is not tackled," he said.

What's more, wrote businessman Esteves, "wages rose without productivity rising. Millions were spent on welfare programs undermining any work ethic."

Specter of inflation

The government, meanwhile, is consciously conjuring up bogeymen to distract Argentinians from its failures. The price increases, it claims, are the result of speculation and the greed of the business community.

Plünderungen in Cordoba

Consumers have repeatedly looted shops in Argentina over the past year

Instead of introducing austerity measures, Kirchner's La Campora youth have been posting placards in public condemning the bosses of leading supermarkets and labeling them "thieves" and "robbers."

And now, the government's ideology could quickly become its worst enemy. In the weeks to come, wage negotiations are on the agenda with the unions representing teachers, hospital personnel, transport workers and garbage collectors. They all want wage hikes above the inflation rate. Economist Carlos Melconian is certain the talks will be difficult: "With inflation running at 28 percent, no trade union representative is going to accept a contract with wage increases below 30 percent."

President Kirchner has called on union bosses to be moderate with their demands. She may well remember early 1989. The economy was in similar shape. Inflation had reached 3,000 percent and angry mobs plundered the supermarkets. A short while later, President Raul Alfonsin was forced to resign.

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