While debates about inflation might feel new in the developed world – to younger citizens at any rate –, that certainly isn’t the case in Argentina, where much of the discussion in politics, media, and academia over the last decade has revolved around what causes prices to rise.
For Vice President Cristina Kirchner and her supporters, the words of White House Press Secretary Jen Psak, who blamed recent hikes in the U.S. on “corporate greed,” were music to her ears. “Listen to her carefully. She is not Argentinian and much less a Peronist. She is the spokeswoman for the U.S. government, explaining why prices rise, especially that of meat, which U.S. consumers also endure – and she says it’s the greed of meat conglomerates,” Ms. Kirchner tweeted out recently.
The thesis of corporate greed has been central in Kirchnerite discourse about inflation, and it has accompanied many policies attempting to keep a lid on rising prices, the most notable being price controls.
Ms. Kirchner’s late husband Néstor Kirchner tasked a controversial close ally with dealing with inflation during his time as President: former Secretary of Commerce Guillermo Moreno – whose daily routine consisted in reading through the price lists of retailers, comparing them with their cost structures, and phoning up businessmen to warn them if they were stepping out of line.
The legend of Moreno grew so big that the media started publishing rumors of him putting a gun on his desk when businessmen came to negotiate prices, in a not-so-subtle move to assert his authority – a story which Moreno denied. In any case, Moreno was anything but a softie, with close ties to barrabravas (football hooligans) and a former kickboxing champion as his bodyguard.
Prices, however, kept rising throughout Moreno’s period in charge, from around 10 percent when he took over in 2006, to 26 percent in late 2013 when Moreno left office with his role increasingly shrouded in controversy – for instance, for his influence over Argentina’s INDEC statistics bureau, where he tampered with official inflation numbers.
In Moreno’s stead came progressive academic Axel Kicillof, who became Cristina Kirchner’s Economy Minister in November 2013. But although Kicillof’s style was more refined, his underlying ideas were similar to Moreno’s.
Kicillof’s critics dubbed him “Excel Kicillof,” due to his team’s fondness for demanding detailed business data from private firms, covering everything from the cost of their inputs to their production, distribution, and marketing strategies, including investment plans and more. All that information fed into giant MS Excel spreadsheets at the Economy Ministry, some of them overseen by Moreno’s replacement at the Secretary of Commerce, Augusto Costa – author of the book, Every Price is Political – who went on to launch the nationwide Precios Cuidados price-control program.
Inflation jumped to 36 percent in 2014, the first year of Kicillof and Costa’s term in charge, following a devaluation which Kicillof blamed on foreign oil company Shell, though most market analysts believed it was caused by a general drop in demand for the peso.
Costa’s price-control program has continued until today, with inflation in the country currently running at 50 percent per year.
Argentina and its discouraging track record
Despite not showing much success, price controls have been tried time and again in Argentina over several decades.
The consensus is that they can often do the trick by freezing increases in the short term – one of the reasons they are so attractive for policymakers. But over the longer term, it is broader macro- and micro-economic factors that have a lasting effect on prices. In a country with systemic debt and deficit problems that are often addressed through money printing, it is no wonder that the national currency constantly loses value when compared to the products it can buy on the market, irrespective of whether governments try to use brute force or complex technocratic schemes for keeping prices down.
Implementing price controls in high-inflation situations caused by a growing mistrust in the currency can often add new problems to the mix. The most common issues are scarcity and shutdowns, something that Kirchnerite Argentina has not seen on a mass scale so far, but that became a stubbornly common sight in Hugo Chávez’s Venezuela, where empty supermarket shelves and bankrupt shop owners were frequently on show.
In the history of Peronism, there is one instance of arguable success in which price controls were implemented: minister Alfredo Gómez Morales slashed inflation from 39 to 4 percent in just one year, following Perón’s 1951 re-election. But Gómez Morales’ price freezes were part of a broader agreement with unions (who accepted a year with no salary hikes after widely benefiting during Perón’s first term) and the state (which massively cut its money-printing).
Later attempts would not do so well. The 1973 Gelbard Plan, after Perón’s return from exile, froze many prices while simultaneously failing to address a historically bad fiscal deficit (14 percent of GDP), leading to scarcity and black markets becoming the norm. It ended in the 1975 shock austerity plan known as Rodrigazo – and the brutal military dictatorship that followed in 1976.
Non-Peronists also have a long history of failure in trying to tame inflation. Although it is rare to see them resort to directly telling businesses how to set their prices, they have often tried to control inflation by subsidizing the value of the peso or capping the price of foreign currencies – moves that have also ended badly more often than not.
Since defeat in the midterm elections, President Alberto Fernández’s government has broadened the scope of Argentina’s price-control programs, placing Cristina Kirchner ally Roberto Feletti in the Secretary of Commerce, and bringing more product categories under its aegis.
“Inflation figures in November show that the program is yielding results,” Argentina’s presidential spokesman Gabriela Cerruti said, shortly after November’s report showed results below expectations, at 2.5 percent for the month.
Time will tell if this proves to be another classic short-term success, followed by complaints about rising costs that inevitably end in new rounds of price hikes, or if Argentina somehow manages to beat the odds this time around.