13 March 2007

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!


  1. One of my banks in the US updated its economic overview of Argentina immediately after the inflation figures were announced. It was very blunt, and described the scandal at INDEC.

    To quote:

    “The consequences of these actions are going to be felt over the next several years, but the first consequences have already started with Argentina’s country risk increasing, government bonds tied to inflation faltering and labor unions and financial markets threatening to use their own measures of inflation in order to negotiate increases in salaries and pricing financial instruments accordingly.”

    “With his actions, President Kirchner has increased the risks for the Argentine economy…”



  2. That's sadly true. Furthermore, I'm hearing now that Economy Minister Felisa Miceli is trying to do the right thing (better late than never) and wants to call independent statistics professionals to fill the vacant posts, and have them selected by a pannel of notable experts or something like that; but the dreaded Secretary of Internal Commerce Guillermo Moreno, who's been gaining a lot of power because of his pressure tactics on the business establishment, is against it, and wants to have INDEC under tight government control for an indefinite time.

  3. I like Kirchner. I'm very grateful to have had Kirchner as President even tho he's got his hand in my pocket big-time.

    But now he's starting to spook me.

    Wage/price controls are a very power-trippy phenomenon. No one should get the idea that they are a left-of-center occurrence, either.

    This whole thing reminds me of Dick Nixon's attempt to finetune the yanqui economy.

    Another interesting bit of fallout from the "below 10%" inflation figure: as a consequence coming in below 10% the "double indemnity" for discharged employees was ended... and it is not retroactive.

  4. Anonymous22:10

    I understand people's fears of K and his not so latent demogoguery - or the fact that Cristina will probably be picking up the reins shortly in November - but isn't there always "the other hand"? What is K to do when the wealthy oligarchs start - needlessly - raising the prices of the "breadbasket/canasta" on which so many survive? Isn't he inherently, with these actions, looking out for the poor? Aguanta companeros! Roberto desde Miami

  5. Let me clarify. Kirchner's way to handle the economy these years has been very good, he's done a good job being tough to powerful people who had never been challenged before, etc. He's a revolutionary where others were mere administrators, and for all his faults, he's a million times better than any of the alternatives. But he's becoming more and more isolated from reality because he's surrounded by yes-men.

    On the issue of the price controls, I find interventionism tricky, but necessary and useful. Now, if your interventionism doesn't work, you need to abandon it and cope with reality — not dropping the real figures and making up new ones.


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