Saturday, May 18, 2024

OP-ED | 18-02-2023 06:00

The number of the beast

The apocalyptic number of six has already struck twice on the judicial and economic fronts – will it make a third and final appearance?

If the Book of the Apocalypse tells us that the number of the beast is 666, this government has already undergone two of those three beastly sixes in the space of the last 10 weeks – early in December Vice-President Cristina Fernández de Kirchner (who turns 70 tomorrow) was sentenced to six years in prison for fraudulent administration, while last Tuesday the INDEC statistics bureau chose Saint Valentine’s Day to announce the far from amorous figure of exactly six percent for January inflation.

In the first month of 2023 Economy Minister Sergio Massa’s New Year’s resolution of three percent monthly inflation by April thus already becomes wishful thinking while an annual inflation of 98.8 percent looms dangerously close to three digits. Millennia of historical experience teach that price controls do not work in the long run but perhaps the most frustrating aspect of this particular inflation figure is that it was high not because of a failure of the Precios Justos controls but despite their initial success (common enough in such schemes). But although Massa’s agreement covers almost 2,000 products, it doesn’t cover all sellers and both seasonal and regulated prices have slipped through the cracks, thus accounting for the high January inflation figure. If both the pace of currency depreciation and interest rates stood at six percent last month, was it reasonable to expect a lower percentage of inflation?

Complicating the issue is the question of whether the government really has the will to battle inflation. The answer to this question should be a no-brainer – in an election year with inflation overwhelmingly the main concern of Argentines, it should be in the most obvious self-interest of the Frente de Todos government to seek to restore the purchasing-power of wages by taming inflation. Yet inflation is the easiest way of controlling the fiscal deficit which is also its main cause – the disease and its cure at the same time. Critics glibly recommend slashing the fiscal deficit but this is easier said than done when such pet targets as political spending or even social plans are a fraction of the 41 percent of the budget spent last year on pensions alone. Instead of biting that bullet, inflation offers the alternative of boosting nominal revenues in real time while diluting various spending items lagging behind, starting with pensions and also including social subsidies and public employee salaries. Much of Massa’s success in comfortably meeting the International Monetary Fund (IMF) target of a fiscal deficit of 2.5 percent of gross domestic product last year stems from this factor. 

It is often said quite validly that inflation is hardest on the poor (also the core of the Frente de Todos electoral constituency) yet recent Argentine experience runs counter to that general truth. Amid general impoverishment the upper half of the population (especially the middle classes) has been hit the hardest with a flatter social pyramid, as demonstrated by the improved equality according to the Gini index. State action thus seems powerless to halt inflation but nevertheless serves to correct its usual social impact.

But the government’s most immediate worry is this month in progress. Supermarket controls have gone as far as they can so the question becomes how to find a grip on regulated and seasonal prices. Updated utility billing was a prime culprit for the January inflation second only to tourism, weighing in with eight percent as against the overall average of six percent, but there seems no alternative if the IMF is to be kept on board by meeting its stipulations for fiscal order and the accumulation of reserves – breaking with the IMF would be an invitation to chaos in an election year.

Among the seasonal prices, beef is a chapter apart. This was not a major factor in the January inflation at 3.9 percent because the price recovery was only just starting but it looms large for the next couple of months. Here the government seems unable to take the rough with the smooth – if it could congratulate itself on evading three digits last year, this was at least partly due to meat prices rising little over 40 percent in a year of almost 100 percent inflation (largely because of the massive slaughter of cattle with the drought) but now the economic team is hatching all kinds of bizarre measures to counter this natural recovery.

The apocalyptic number of six has already struck twice on the judicial and economic fronts – will it make a third and final appearance?

related news


More in (in spanish)