Super size peso

The government has tagged along behind Donald Trump in taking Argentina out of the World Health Organisation (and maybe the Paris climate accords too) in the footsteps of the United States as almost the only absentees apart from a barred Taiwan and Liechtenstein but whatever the other consequences might be, there need be no worries that the WHO’s fast food anxieties will languish here as far as hamburgers are concerned – Argentina is doing a very nice job in pricing itself out of this market, judging from the Big Mac index of The Economist magazine (showing the whopper to cost the equivalent of US$6.95 here as against US$5.79 in its mother country, second only to Switzerland).

A palpably overvalued currency, of which the most immediate symptom this summer has been thousands of Argentines spilling over frontiers to snap up half-price garments, footwear and electronics abroad – a significant factor in the balance of payments (already in the red since mid-2024) but far from the only one. Paradoxically enough, currency appreciation is a problem of growth, not recession – a trade surplus of almost US$19 billion was posted for 2024 (although already sliding into a merchandise trade deficit in its last month) largely due to a stricken economy importing 30 percent less but this new year is pointing in a very different direction. A projected growth rate of five percent along with the relaxation of import restrictions to keep inflation on a downward track is pumping up purchases abroad while exporters are fighting a losing battle competing with an overvalued peso against the maxi-devaluation in Brazil and elsewhere amid sluggish global commodity prices, placing jobs at risk.

There has already been a sharp turn of this screw this week with the Central Bank decision to halve the crawling peg monthly devaluation from two to one percent for February, swimming against a global tide of Trump’s protectionist lurches (mostly directed against his neighbours and free trade partners) upping the pressures to devalue even more than to retaliate. Economy Minister Luis Caputo has no real answers to this challenge beyond more of the same, sticking to his fiscal surplus fixation, and it is very difficult to change course because constantly pegging devaluation and interest rates below inflation (having prices chasing these variables downward rather than the other way round) has been so successful against inflation and there are midterms to be won not much further down the road.

Denialism is not the solution but nor is devaluation with its inevitable sequel of futile wage-price races while giving free rein to speculation. While hamburgers might not be the best example, the overpricing of precisely those items being so avidly sought abroad like clothing or electronics is not so much a consequence of currency appreciation as Argentina having become one of the world’s most protected markets which this government is only just beginning to dismantle (medicaments might be added to that list). On this front the economic team feels obliged to move in a very different direction to not only the world but even to Trump – their justification would presumably be that the US president is coming out of a very different context (something to bear in mind when slavishly imitating him).

Time is not on the government’s side when it comes to looking for alternatives. An overvalued peso not only stems from the manipulation of a Central Bank which President Javier Milei had vowed to demolish in his election campaign but also hidden costs which can be attenuated by structural tax and labour reforms and deregulation – yet these will not only take time but must await the midterms for presumably greater strength in Congress. The government might also argue that the quarter of a trillion-plus dollars Argentines have abroad would more than suffice to solve all problems and that this would return with the confidence already evident in the dramatic fall in the country risk rating – yet last year’s ‘blanqueo’ tax whitewash has already been cashed and confidence is awaiting the midterm results like so many other things. The best bet would seem to be a quick fix from the International Monetary Fund (IMF) yet the government’s stubborn indifference to the problems of currency appreciation is also an obstacle for an agency only too mindful of how efforts to stabilise the economy by this route (not only convertibility but also under Kirchnerism) have crashed in the past.

Last but not least, it should not be forgotten that amid all the “super size me” of Argentina’s dire Big Mac index rating, all too many people are going hungry.