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Argentina: Prices Are What We Say They Are

By: Sofía Ramírez Fionda - Jan 7, 2014, 1:04 pm

EspañolOn Friday, Argentina’s government announced new price controls that came into effect yesterday in the capital of Buenos Aires and its surrounding areas. This new regulation sets the price for 194 diverse products in 10 nationwide supermarket chains and 65 wholesalers.

This policy emerges in a context of growing inflation and a decrease in central bank reserves. By the end of 2013, inflation in Argentina had reached 48 percent, according to the Troubled Currencies Project, and 27 percent, according to the Congress. The rising face value of expenses became the most concerning problem for Argentineans last year, and it contributed to the president’s weakening popularity.

During January, this regulation will expand to include more businesses and more regions of the country. While the current provision only applies to the Metropolitan Area of Buenos Aires, a small geographic portion of the country, it holds almost 35 percent of the national population.

Disparate Measures, Explanations for Inflation

In 2007, the government interfered with the National Statistics and Census Institute (INDEC) — the governmental agency responsible for measuring inflation. Since then, the official records on the cost of living have differed widely from the numbers that private firms have released. The difference became so broad that during 2011 the secretary of domestic commerce, Guillermo Moreno, began fining all private firms that released inflation rates dissimilar from the government’s. The reason for this decision was an alleged lack of scientific accuracy in their studies.

Even though the government doesn’t deny inflation anymore, the faults and excuses for its causes remain in dispute, as they differ greatly from those offered by economists and opposition leaders.

The government’s discourse focuses on blaming “price creators” — in other words, companies that participate in the production chain. According to the new secretary of commerce, Augusto Costa, these agents “seek to take something that doesn’t belong to them” by increasing prices up to a point where they don’t reflect the costs anymore, but instead, they account for disproportionate profits.

In an interview with the Argentinean journal, Página/12, Costa sought to deflect blame but instead generated confusion. He claimed that the price rises have been a result of economic growth, a benefit of state intervention. Further, the Argentinean economy, according to Costa, has been dominated by a few businesses that hold power as price creators, which he believes is “natural and typical of capitalism.”

In this regard, as a representative of the government, he sought to uphold the merits of its control mechanisms and wealth redistribution. At the same time, he sought to take credit for any advances that do occur while still halting the alleged accumulation of capital in the hands of a small group of individuals.

Even though the opposition may be politically divided, it has a unified criterion for the solution to this problem. During an interview with the news site TN, the economist and national deputy, Martín Lousteau (UNEN party alliance), said that price regulation doesn’t seek to reduce inflation, but instead to moderate its increase. Lousteau said “to moderate the inflation, we would have to talk about the huge waste the government generates . . . and how it is financed. If we don’t deal with those two topics first, we won’t ever solve inflation.”

Lousteau is not the only one who highlights the importance of public financing to understand the inflation problem. According to the economist Roberto Cachanosky, the need for liquidity pushes the government to issue more money in an uncontrolled manner — which rose 25 percent in 2013, according to the president of the Central Bank — as a way to keep distributing wealth. Therefore, Cachanosky states, we enter into a monetary problem with no control that keeps increasing the inflationary cycle, and won’t be stopped with price controls.

Spy on Your Neighbor for “Redistributive Justice”

In this same interview, the secretary of commerce assured “the business logic that seeks to maximize benefits puts certain limits to redistributive justice. We seek to restrain those who define prices, as well as their capacity to take something that’s not theirs.”

Costa assures that this policy requires citizen’s “deep knowledge” of intermediary prices. “The consumer will have to act, get informed, and know [prices]. People will have to keep an eye on prices, alongside the government,” Costa said during a press conference.

In this regard, Argentina’s government launched the site Cared Prices (Precios cuidados), where consumers can find information about regulated products and their prices, as well as the businesses where these apply. Also, this allows citizens to detect when a supermarket chain has breach the price control regulation.

In the case of any violation, the site offers a contact form where consumers can denounce them.

This idea is far from new: in May 2013, President Cristina Fernández de Kirchner announced the “Watch to protect” campaign (Mirar para cuidar in Spanish). This first step towards price regulation allowed Kirchner’s party militants to monitor the price of more than 500 products, that were under a price freeze ordered by the secretary of domestic commerce.

In that moment, Fernández said “we won’t let this [price regulation] rely in the good will of businessmen or the secretary of commerce… We will use the force from political and social groups across the country, with the ‘Watch to protect’ campaign.”

What to Expect

Government officials, at least publicly, anticipate economic benefits for consumers. For Costa, once the consumers know the price this regulation has established, they won’t see any price variation during their purchase. This behavior, they claim, will eventually lead to generally lower prices.

Costa states, “the referral basket provides orientation to consumers so that they can make informed decisions.” He also assures that this won’t be a “price freeze,” because the government will adjust them according to cost structures and changes. With this revision, their aim is to avoid “businesses transferring their disproportionate cost rises” to prices and harm to the consumer.

However, Axel Kaiser, executive director of the Foundation for Progress, a policy institute in Chile, says this is a nonsensical decision that will only worsen Argentina’s economic situation.

“Prices transmit information regarding available resources and their demand. When they go up, they send the signal to increase production of a given commodity. In the case of Argentina, prices have skyrocketed as a result of massive money printing by the government. Fixing  prices below market levels will lead to scarcity of goods and black markets affecting the population even more.”

Sofía Ramírez Fionda Sofía Ramírez Fionda

Based in Buenos Aires, Argentina, Ramírez Fionda is a former Spanish-language editor and journalist with the PanAm Post. She holds degrees in political science and international relations, and you can follow her on Twitter @SofiFionda.