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Argentina: inflated expectations


People ask what is going on in Argentina, and from the coverage you’d be forgiven for thinking that Argentina is a chaotic country on the verge of breakdown. Most stories rehash old clichés as if they had always been true. Some more interesting reports question the apocalyptic stories that are going round.

The tensions within the country become lurid when projected on the newsprint of international outlets. Journalists reflect the ongoing hegemony of Peronism; and given the impossibility of describing this political movement in terms of anything else, they resort to asserting its irrationality and, that catchall of basketcase politics, populism. So clearly Argentina must be failing, again.  

Argentina has no one to blame but itself for the purple prose. The current president Cristina Fernandez de Kirchner is prone to colourful speeches, in spite of her sober widow’s weeds. And Argentina has made a habit of financial meltdown where currency devaluation and inflation combine to reduce the value of money and generate social unrest.  

Everyone’s favourite way to measure Argentina’s failings is inflation. Living with inflation is indeed unsettling and unpleasant, andthis makes for good, indignant copy. Experiencing it feels like being a frog in a pan of hot water, as the heat is gradually turned up. A few people jump out. Most just stew. I can vouch for the fact that Argentina has had recurring bouts of inflation in every decade since the 1970s. I’ve gone to shops and paid more for the same thing from one day to the next, and felt the anxiety of wondering where it was all leading. The instability is unsettling, much in the same way an earthquake is: it makes you question the stability of what ought to be solid.   

Cartoon published by blogger El Rufián Melancólico

Read as news, inflation is always bad. But there are lessons to be learned beyond the headlines. The main economic fact about inflation that does not get reported in the international financial press is that it reflects a power struggle about how to distribute wealth within a country. If unemployment is the price of low inflation, as Kenneth Clarke infamously put it in the 1980s, then Argentina has chosen the opposite path since 2003: high inflation has been the price of generating employment and consumption. These are currently the two main indicators of economic growth the world over. They may not be sustainable ecologically, but they are the signs of economic success. Of course it would be better to have low inflation and low unemployment, but no one has a failsafe formula to achieve that. 

The current bout of rising costs in Argentina has an additional component that dares not speak its name. The devaluation of the peso that took place in 2002 masked a dramatic reduction in real wages. Labour became cheap and, during the boom years between 2003 and 2008, these lower costs made Argentina extremely cheap.

The bargain economy was good for promoting investment, tourism and consumption. It made the economy work again after it had been brought to a near standstill by the overvalued currency in the 1990s. And once the recovery picked up momentum, so did the demands for higher wages (remember that reduced wages had been the incentive to jump start the economy). The government supported union negotiations for pay increases that began to eat into profits, and the power struggle for the distribution of wealth began in earnest.  

Inflation has to be measured against costs that include living wages. It needs to be compared against the gains in distribution made during the same period. Per capita income has been steadily rising according to the World Bank (US$3,997 in 2004; US$11,573 in 2012). Income inequality has been falling, with the Gini index going down from 50.2 in 2004 to 44.5 in 2010 (even though poverty has not been reduced as much as the government claims). Social security has expanded so that there is a universal old age pension and a child benefit that is available to all who work informally.  

I am currently travelling around Argentina and neighbouring countries. I was already aware that the cost of living in Uruguay and Brazil was higher than in Argentina. It turns out that Chile and even Bolivia are expensive compared to Buenos Aires. Thus it is possible that the current price rises in Argentina are only just coming into line with more realistic costs.  

Inflation as class struggle may not be pleasant to live with, but it is not irrational. The instability it promotes does not help anyone, and that is the true social cost of escalating prices. To paraphrase Oscar Wilde, inflation reflects the reality that Argentinians know the price of everything and the value of nothing. Or to be more accurate, they cannot agree a price for anything because they cannot agree on the value of joint endeavours and how to distribute the proceeds. Nor the value of agreeing at all. Inflation is a symptom masquerading as a cause. It is an accurate reflection of existing conflicts, but does not lead to negotiated resolutions and that is why Argentinais yet again living in fear of going from boom to bust. 

Marcela López Levy is a former staff editor, author and director of LAB.






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