Oh Argentina…the poster-child for incompetent and corrupt government in handling of financial affairs. They just announced they are freezing food prices to “control” inflation. Of course the official inflation rate is reported around 10%, but unofficially it is around 30%:
Now, this won’t do anything to solve their inflation problems. What it will do is cause food shortages as suppliers cut back on production because they are not able to pay their bills.
They seem to be on Stage 3 of my Five Stages of Inflation:
Here they are again for a review
Denial – “Prices are stable and the currency is strong! We don’t know what’s causing inflation!” – First sign of trouble is not admitting you have a problem.
Anger – Blame the Victims – “Greedy businesses are responsible!” – May also involve idiotic government campaigns that blame consumers for causing the currency to fall in value instead of reckless government spending.
Bargaining – Price and Wage Controls – “We are doing this to protect the economy!” – Welcomed at first by a naive public (until the product shortages kick in).
Depression – Pointing Fingers and Acting Hopeless – “It’s the previous administration’s fault! We don’t know what to do any more.” – While making no serious effort themselves to remedy the situation even though they know what needs to be done.
Acceptance – Screw the Populace – “It is our fault. But it’s your patriotic duty to lose your life savings.”- May also involve confiscation of hard assets, freezing of bank accounts, capital controls to prevent citizens from sending money offshore, etc. By this point much value in the currency has been destroyed.
I was just in Argentina and it’s a wonderful country. I loved the towns I visited and people I met. It’s just a shame that they continue to allow their government to run things into the ground. It seems to happen there about every 10 years or so.
When there I avoided the big cities and stayed well south. Inside the country the prices were running ahead of inflation and some things like internal plane travel were quite high compared to their neighbor, Chile (about 2-3X the fare prices for same length of flights). Because I knew their currency was doing a swan dive, I made sure to only remove about 1-2 days of Pesos from the ATM and I kept that largely for emergencies. The rest of the time I used a credit card so the exchange would happen right there and I would have as little of their paper currency as possible. I also had US Dollars and Chilean Pesos in reserve just in case the Argentine Peso really cratered when I was in country.
When I crossed the border I made sure to spend down my reserves as best I could and managed to get out with only 100 pesos in my wallet (about $20 USD). Of course when I went to the money changers back in the U.S. none of them would accept Argentine Pesos (they took my Chilean money with no problem)! So it’s a souvenir and I guess my own personal contribution to the Argentinian government’s theft. Oh well, it was still a very nice trip!
Interestingly, when speaking with Argentines about the problems there are definitely strong feelings about their President and her involvement in the damage (I don’t talk politics when traveling, but am happy to listen when they speak to me about it). In particular though, I noticed when I was there that the president was rattling sabers about the importance of the Falkland Islands in their dispute with the UK. Of course this happened to be the exact same time when they had things like riots in grocery stores in Buenos Aires, etc.
Seems that no matter where you go, when you have an incompetent and corrupt government messing things up, the thing they always do is try to pick a bogeyman to distract people’s attention from the real issues.
I wish those in Argentina the best of luck with what they are about to go through. It’s time for them to stock up on critical supplies if they can and try to get some money out of the country. This story has happened before and the ending is always the same.