If you can't beat 'em... just close your eyes

The problem with a planned economy is that you can't keep holding all the threads in your hand. Some you will forget, some will tangle, some will stretch and stretch and finally snap and lash against you.

As inflation started creeping into public opinion as a growing concern, the Argentine government started talks with a few economic agents (producers, distributors and sellers). The talks soon turned into "agreements", then negotiations under pressure, and finally de facto price controls. Even then, the loopholes were so many and so big that the price of most products continued rising.

The government restricted exports of beef and other sensitive products. Many cattle farmers, unsatisfied by their profits, turned their pasture land into soybean and corn crops. The slaughter and export fell. The government started monitoring the Liniers Cattle Market, which has long been the largest in Argentina. The livestock producers turned to private one-on-one transactions and to the black market, as the prices in Liniers were much lower.

The controls finally started leaking massively because of those little things that lie outside our abilities (and even President K's abilities). The price of corn rose internationally after Wargame Boy decided that the U.S. should move from dependency on foreign oil to dependency on foreign ethanol, which is produced (among other methods) by fermenting corn. Feedlot cattle in Argentina therefore became more expensive (the government is subsidizing feedlot corn). The weather in the north-center of Argentina turned rainy at the worst possible time, so the Paraná River started to rise, flooding a lot of low-lying islands in its delta, mostly in Entre Ríos, which were used as pasture for hundreds of thousands of cows; those cows are being moved at great cost to higher regions, and many are drowning or getting sick. Up goes the price again — no less than 10%, according to worried butcher shop owners, and this while the meat arrives with a noticeably lower quality.

At some point during the last year, also, the Argentine government concluded that, if you can't control the economy, you can invent it and get away with it. 2006 finished with an inflation rate suspiciously just beneath the highly symbolic mark of 10%. Fine enough. We went on vacation and everything was much more expensive than that, but hey, vacations are a luxury item, like a car. Surely beef, chicken, fruit and vegetables were more-or-less the same? Wrong. The result of meddling with the census bureau are evident. INDEC (I've already seen the spelling IndeK in the papers!) has hastily changed the methods used to calculate inflation, and nobody would be surprised to see similar changes for unemployment, GDP growth, and other figures. The scandal has given way to practical, typically Argentine skepticism — INDEC has become political and thus irrelevant. Nobody believes politicians will keep their promises; we know their job is trying to deceive us.

When the scandal first broke out, I guessed it was largely an invention of the media, because I thought things would be made clear soon; it was in the best interest of the citizenry and the government. I must correct myself now. Another high-ranking official of INDEC has just resigned, the third since December. IndeK is fast turning into a new Ministry of Plenty. Everybody, get a firm hold on your beef rations and pretend to be happy!

Countryside on strike

The agricultural producers of Argentina are on strike since last Sunday, and boy, the spits of venom are flying all over us. Minister Miceli gave a press conference calling the strike "ideological and political", and dismissed the claims of the producers regarding their contribution to the wellbeing of the country. The government has been intervening in (some would say interfering with) the beef market and, to a lesser extent, with the wheat-flour-bread markets, in order to keep prices from rising; and of course there are the retenciones, or export taxes, in place since the economic crisis exploded.

The economic juggling act is as follows:

1. Exporters take advantage of the high exchange rate (over 3 pesos/dollar) to sell at internationally competitive prices and gather a good profit. The ones most benefitted by this exchange rate are the agricultural producers.
   
2. The Central Bank sucks up the incoming dollars, keeping the exchange rate artificially high (over 3 pesos/dollar), so as to maintain the competitiveness of the exporters.
   
3. The government taxes exports, differently according to what exactly is being exported (some things are not taxed, others are taxed 20%). This is how it gets a sizable part of the total tax revenue.
4. The very success of the above strategy places it in danger, since the more competitive exports are, the more dollars enter the local market, thus pushing down the exchange rate.
5. Not only that, but the Central Bank has to emit pesos in order to buy dollars. This effectively devalues the peso and expands the monetary base, indirectly fueling inflation.

The problem arises from the fact that the producers would like to charge the same price internally than externally. Absent that possibility (since most Argentinians cannot afford dollar-priced goods while getting salaries in pesos), most producers prefer to export rather than selling within Argentina. The export tax is also an attempt to "convince" them, by making exporting less profitable, but in general, Argentine producers can still get almost 3 times more by leaving the internal market undersupplied and shipping their goods abroad.

The agricultural sector in Argentina, as a whole, has no reason to complain about profits. During the 1990s, when the exchange rate was fixed at 1:1, many invested in imported machines and increased their productivity, but then they went broke as their exports were uncompetitive. Now they have a government that keeps the exchange rate high for them, making it prohibitively expensive for most of us to get certain imported goods, but they still complain.

One of the points of contention is the government doesn't have a plan for the agricultural sector and doesn't help the smaller producers, who are being bought up by their larger fellows. Indeed, the soybean boom has created a depressing landscape in which a few hundred landowners with huge plantations employ sophisticated machinery and very few people to plant any available patch of dirt over millions of hectares with a transgenic monoculture, then to harvest it and sell it to China (mostly), while producers of less-favoured crops (including many regional specialties in the poorer parts of the country) are struggling to keep up, and falling back.

For some reason, the conservative wealthy elite of the countryside have managed to present this strike as a just cause, as the fight of the economic saviours of the country for a free, undistorted market. The truth, of course, is that if they had their way, the national budget would run a huge deficit and we'd be having milk, bread and beef at three times the current price -- those of us who could afford them, and even then, only as much as the producers did not manage to sell abroad (the EU, for example, buys quality Argentine beef at a very good price, but only a small fixed quota; and both the EU and the US burden their imports with tariffs and regulations to protect their own producers). The controversial Secretary of Internal Commerce, Guillermo Moreno (the price control czar, so to speak, of the Argentine government) put it bluntly: "We can't have food at international prices."

The last cause of anger for the countryside folks was the announced decission of the government to employ force should the roads be blocked by the strikers to prevent the traffic of grain and cattle from their sources to the markets (a threat the strikers have already made -- and they already blocked the Rosario-Buenos Aires Highway for a while). The opposition pounced on it, calling it a double standard (which it is), since the government refuses to clear the road blocks set up by the piqueteros in Buenos Aires and by the pulp mill protestors on the roads before the international bridges linking Argentina and Uruguay, which are arguably causing as much trouble, though of a different kind.

This certainly looks like it will be a rough year's end.