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Argentina takes steps to combat inflation (that officially doesn't exist)

IMF gives Fernández de Kirchner an ultimatum to present accurate figures

Venezuelans take to the stores on Wednesday.
Venezuelans take to the stores on Wednesday. AFP

In Argentina you can buy just about anything on credit - from a head of lettuce to a plane ticket. Some people pay with credit cards because they have no other choice but to borrow, and others because they know that their payments at the end of the month will work out much cheaper thanks to inflation.

The center-left government of President Cristina Fernández de Kirchner has focused on growth policies based on consumption. From 2003 to 2011, the country's economy grew by an average of 7.5 percent annually, more than ever before in Argentina's history. With inflation speeding ahead, wages have also soared.

But last year, GDP plunged in a 12-month period from 8.9 percent to two percent. Inflation, however, continued to rise unabated, but the government ignored it. In 2007, the government tried to hide the data when it intervened at the National Institute of Statistics and Census (Indec), grossly reducing the inflation figures. Official figures now put the annual inflation rate at about 10.8 percent while unofficial statistics place it at about 25 percent.

Fernández de Kirchner barely mentions inflation in her public speeches, and when she does it is to explain that there are other priorities she needs to focus on. In the more than 200 speeches she gave last year she used the word "growth" on 432 occasions; inflation was only mentioned 24 times.

Price controls can help handle inflation only for now," says one economist

But last September, Fernández de Kirchner felt the need to say the "I" word 26 times in one day, when quizzed by students during a conference at Harvard's School of Government. And this was part of her response: "If inflation was really at 25 percent [...] where do you think the people

[would get their money]? I'd love to invite you to Buenos Aires to see the consumption in the capital, just by strolling through Buenos Aires. It is a very pretty city. You will see the restaurants full, shopping malls filled with people buying. If the inflation numbers were actually about 25 percent, the country would collapse. We could not have paid any of the billions of dollars that we have paid, we could not sustain the growth of an economy like the one we have been able to hold on to."

The country has not collapsed but tensions have heightened. Two people were killed and more than 500 were arrested during lootings that took place in several cities before Christmas. There was also a protest of about 700,000 people mostly from the middle class beating pots and pans - known popularly as a cacerolazo. In November, the unions, once allies of the government, held a general strike.

Meanwhile, for the first time in its 69-year history, the International Monetary Fund (IMF) has admonished a country, with a motion of censure for Argentina for not correcting "inaccurate data" on inflation and the country's GDP. The IMF has repeatedly urged Buenos Aires to improve its statistics, and has now given it a September 29 deadline to submit figures that are more in line with reality.

If inflation was actually about 25 percent, the country would collapse," says Kirchner

It is true that the restaurants, shops and theaters of Buenos Aires are full. Yet almost all indicators point to the 25-percent inflation figure that Fernández de Kirchner denies.

Last year the government tried to cap wages in collective bargaining agreements at an 18-percent increase, but the majority of negotiations ended with a 20-percent pay raise. This year, the government wants to set the limit at 20-percent (almost double the government's official inflation figure), but unions are demanding raises between 25 percent and 30 percent. Negotiations, which have begun, will continue for the next two months.

Meanwhile, the government has been taking steps to deal with high inflation without officially recognizing it. On February 4, Commerce Secretary Guillermo Moreno met with major supermarket chains and managed to secure a commitment from them to keep prices frozen until April 1. The following day he was able to get a similar pledge from the nation's appliance chains.

But it remains unclear whether the government is seeking to bring inflation under control or merely hide all evidence of it. Fernández de Kirchner has not commented so far on these latest moves.

The unions, however, accuse the government of trying to stabilize inflation over the next two months as it tries to hammer out agreements over pay raises and keep them at 20 percent. Union leaders have already warned that they will not ask for less than 25 percent.

"These [price control] agreements can help handle inflation only for now," says economist Ernesto Kritz. "But their reach is very limited if they are not accompanied by other macroeconomic and fiscal measures such as ending restrictions on imports. In the previous decades, when something similar to this was introduced, in the majority of instances these measures failed."

However, people like 53-year-old Néstor Burruni, a psychoanalyst, supports price controls. "Hopefully, with these measures people can buy basic foodstuffs without going into debt. For us, buying the basics involves spending about 4,000 pesos a month [600 euros at the official rate and 445 on the black market]. And if I can't pay for it all, then I put it on the card."

Burruni believes that the middle class to which he belongs is helping to improve social policies. "While the government continues to help the poor they will continue to have my support. I do not mind making sacrifices."

What he and other consumers fear is after April 1, prices will skyrocket like never before. But for now, shops, businesses and theaters around Buenos Aires are still full. There are "people consuming," as Fernández de Kirchner put it.