Argentina always seems to be going through some sort of economic trouble, and my time here has been no exception. Inflation is rampant, there’s a black market exchange for dollars, and the price of imports is through the roof. The government’s response to the financial problems is comical at best, damaging at worst.
Without going into the specifics, international investors (with reason) don’t have much faith in the Argentine peso, so Argentina needs dollars to back up its currency. However, every time someone buys something from outside the country, the banks (Argentina) have to send some of their dollars out of the country to pay for it. This causes an imbalance of payments (more dollars going out than in), so the Argentine government is desperately trying to keep all of the dollars it can in its bank to back up the peso; the reserves are dwindling quickly, further adding to the trouble. The government has imposed some quick fixes, including but not limited to: putting a 35% tax on all purchases made with a credit card for products outside the country, placing a huge tax on flights to the United States, limiting the number of credit card purchases one can make with a credit card outside the country to 2 (otherwise one must register as an importer)… the list goes on.
Inflation is both a cause and effect of the economic problems. Inflation goes up when the peso devalues, so you have to use more pesos to buy the same product. When I arrived in Argentina, the official exchange rate was 5.5 pesos to the dollar, and now it is 7.89 pesos to the dollar (black market rate is between 10-12). But inflation is also something psychological, as many businesses raise their prices to make up for inflation that will happen in the next few months. It’s a defense mechanism that is an unfortunate reality of life in Argentina. In July, a bottle of Coke Light (the regrettable Diet Coke substitute I survive on here) was 7 or 8 pesos—now it’s 10 to 12. Inflation is tricky because we can only measure it after it happens. If you’re a business, waiting until the end of the month to deal with inflation is too late, so you raise your prices as you go to account for anticipated inflation.
However, the Argentine government’s response to the inflation is the most mind-boggling to me. They have a Precios Cuidados (Cared-for prices) campaign to keep prices fixed on certain products at many grocery stores. Basically, it’s a list of official prices that the government sets for basic products, and all grocery stores have to comply with the prices or face the risk of being closed (temporarily or permanently). There’s a website where you can check how much items should be, and report if something does not comply with the price list.
Screenshot from the Precios Cuidados website. These prices are supposed to be fixed across the country for lettuce, apples, and black potatoes (a potato that has not been cleaned and is black from the dirt). I use the rate of ten pesos the dollar to calculate how much items cost.
I find the price list humorous and ironic for several reasons. First, they had a more limited precios cuidados campaign back in September, with much lower prices. I used to buy this specific tea brand because it was 2 pesos for a box of twenty-five bags of tea, but now that they have raised the price to 7 pesos (which is still advertised as a guarded price), I am less likely to pick that brand since its price isn’t so outrageously low. Second, some of the prices just don’t make sense. For example, a generic carton of six eggs is a guarded price at 8.55 pesos, but a dozen eggs is not and 20 pesos.
The whole uproar with the price is just the government’s way of doing something, but it’s a damned if you do, damned if you don’t situation. Price controls have been proven not to work, and it is going to take a large restructuring of the Argentine economy to make any lasting change. This Peronist government cannot make those changes without alienating its base, and so no change will happen until the next election in two years.