Saturday, April 13, 2024

OP-ED | 03-12-2022 05:00

Is there life out of court and off the pitch?

​​Inflation is now outrunning everybody and everything – the exchange rate, wage and pension increases, interest rates and even public spending.

A country often accused of sacrificing everything for its present is right now in suspended animation awaiting the immediate future – today’s World Cup clash against Australia (a limited team which only scraped into the tournament via a play-off penalty shootout but who can be complacent after the shock upset against Saudi Arabia?) and Tuesday’s verdict in the Santa Cruz highway contract corruption trial with Vice-President Cristina Fernández de Kirchner as its leading defendant. Nevertheless, we are talking about a very immediate future here – the World Cup will be over a week before Christmas while whatever Tuesday’s verdict, its impact will be diluted by the lengthy process of legal appeals sure to follow.

From a slightly longer-term perspective the four months commencing the day before yesterday will supposedly be the make or break period for taming rather than eradicating inflation, surely the central problem for this country and the government alike since the current levels doom the latter to electoral defeat next year. Economy Minister Sergio Massa has set a target of three to four  percent monthly inflation for next April (which also raises the question whether this is because he believes that anything lower is impossible or because he would not like to see inflation below that level since it serves as a fiscal shortcut, reducing the real value of government debt while boosting nominal revenues).

Towards that target Massa has launched the Precios Justos programme whereby companies freeze some prices while keeping the others below a four percent monthly cap, with priority access to dollars at the official exchange rate for import purchases offered as the carrot. Yet that official exchange rate is currently being devalued at a monthly rate of approximately six percent and this pace could be difficult to slow with the vicious circle between inflation and expectations of devaluation. Limiting depreciation to four percent would make one of the world’s most inflationary currencies simultaneously overvalued, expanding the already insane gap between parallel and official exchange rates. The alternative would be asking businessmen to buy dear and sell cheap if the current pace of devaluation continues, given how much cost structures are driven by the dollar.

Curiously enough, buying dear and selling cheap is also what lies behind Massa repeating September’s supposedly one-off soy dollar – while replenishing eroded Central Bank reserves, the scheme also involves paying the farming sector 230 pesos (as against 200 in September) for each of their soy export dollars and then reselling those greenbacks to those qualifying for the official exchange rate for approximately 175 pesos. The return of this scheme is an open admission that dollars are lacking and it would seem an uphill battle to keep such a scarce item cheap when so much in demand. A scarcity which can only grow if drought persists.

Inflation has been tolerated for so many decades because it has also carried fringe benefits. In fiscal terms at least it is self-correcting, simultaneously solving the problems it causes by using inflation as a revenue-booster and cost-cutter (as mentioned above) while passing the problem onto everybody else. But among the population at large inflation has long been considered the price of growth. Thus even if prices were rising more than twice as fast, double-digit economic growth in the bicentennial year of 2010 was a huge fact in Cristina Fernández de Kirchner’s 54 percent landslide the following year, even though often attributed to a sympathy vote for the recently widowed president. Yet double-digit growth returned last year (albeit mostly pandemic rebound) and there was no electoral reward, only a stunning midterm defeat. With inflation now heading into three digits, most people seem to notice that far more than the growth, which is in any case faltering. Inflation is now outrunning everybody and everything – the exchange rate, wage and pension increases, interest rates and even public spending.

But Massa has a grace period of four months to show whether his strategy has legs – in the meantime most eyes will be on today’s match and Tuesday’s verdict.

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