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Argentine Inflation: It’s Tough When All You Get Is Lies

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Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

The issue of inflation is complex everywhere. Official rates are disputed. People can’t reconcile them with what they see at the store. There are different formulas and data sets, resulting in different rates, and everyone picks and chooses what suits their needs. But nowhere is the issue as “complex,” infested with lies, and shrouded in obscurity as in Argentina.

The debacle took on hilarious overtones when a Greek reporter, in her soft, harmless-looking manner, began to crucify Economy Minister Hernan Lorenzino during an interview at his office: “I have a very simple question for you, which seems very complicated these days: how much is Argentine inflation at this moment?” His response was an epic journey into obfuscation that got him entangled in such verbal spaghetti that the video, when it was released in April, went viral instantly. “We never speak about inflation, not even with the Argentine media,” an unseen aide explained after the minister had skedaddled.

But his jab at official inflation was on target. The interview took place late last year. By April, inflation, as reported by the Instituto Nacional de Estadista, was 10.5%, down from 10.6% in March, and from 11.1% in January, its recent peak, nicely heading once again in the right direction, after having been below 10% for much of 2012. But it’s a joke – though not nearly as hilarious as Lorenzino’s verbal spaghetti.

In early 2007, the staff at the statistical agency were booted out and replaced with political appointees who would toe the line on inflation and other inconvenient statistics. Since then, official inflation has been decided by edict.

Private economists, brushing off these figures with a nervous smile, kick around 25% as the current annual inflation rate. Mid-May the government nodded. With elections coming up in October, President Cristina Fernández de Kirchner has to hand some goodies to her base to buy their votes. So during the impeccably timed wage negotiations, she personally met with leaders of six unions representing 2 million workers, and struck the same kind of deal she’d made with the Railway and Bus Drivers’ unions, a deal that might get close to preserving purchasing power: wages would be increased by 24%! The closest to an official and somewhat realistic CPI that Argentina has.

To pour some oil on the fire, Torcuato Di Tella University (UTDT) – a non-profit private university in Buenos Aires – publishes the Inflation Expectation Survey. It measures what the public expects inflation to be over the next 12 months. For much of 2006, when the surveys began, median inflation expectation was 10%. The just-released index for April came in at 30%; and average inflation expectation rose from 34.2% to 34.9%.

UTDT concedes that the public has a tendency to overestimate changes in consumer prices. Nevertheless, it’s another ray of light in an obscure environment where the government has done its darnedest to replace any visibility with lies. Yet ordinary people, managers, and investors alike need to make decisions daily based on their understanding of inflation. And they’re making those decisions – just not the way the government wants them to.

The impact on the peso has been, let’s say, noticeable. In 1999, when I first traipsed around Argentina, the peso was interchangeable with the dollar one-to-one. ATMs would distribute both, depending on the button you pushed. Quite impressive. But Argentina seemed expensive, compared to other Latin American countries. And the economy was bogging down. Something was amiss.

The peso mirage ended in 2001, when people cleared out their bank accounts, converted pesos to dollars, and sent them overseas. To stop this torrent, the government froze all bank accounts; only small amounts of cash could be withdrawn. The people didn’t accept this quietly, which led to the declaration of a state of emergency, and more riots. In January 2002, the government lifted the dollar-peso parity, and set an exchange rate of 1.4 pesos to the dollar. People with money still frozen at the bank had been robbed.

And it never stopped. In early May on the black market, the peso fell through yet another floor: for the first time ever, it took over 10 pesos to buy a dollar. People have been scrambling to convert every peso they didn’t need at the moment into dollar bills. The official exchange rate is 5.25 pesos to the dollar. But it too is a lie, for most people. In one of those ironies that follow reckless deceitful governance, the government is running out of dollars and few people can buy them at the official rate – though the country is awash in dollar bills.

Since I write so much about financial fiascos, debacles, and nightmares, I’ve been asked about ways to protect assets in this environment. Thankfully, I don’t give financial advice. Even if I did, I wouldn’t have all the answers. But I just finished reading an excellent book on precisely that topic, so I decided to review it. Read.... Diplomatic Immunity For Your Assets In Interesting Times!

 

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Wed, 05/22/2013 - 20:14 | 3589942 pauhana
pauhana's picture

The daughter of a good friend is coming back this evening from Argentina.  She's been working as a consultant for a mining company.  She was appalled by the degree of corruption she encountered in that country.  She tried to fight it.  She was brutally attacked two nights ago.  She is so incoherent that we still don't know the extent of her injuries.  In any case, why would anyone want to invest in that country?   It makes no difference that one is an American.  Unless you are willing to sell your integrity, don't bother to try to do business in Argentina.

Wed, 05/22/2013 - 21:10 | 3590162 TNTARG
TNTARG's picture

Please, can you tell me where it was? Was it in the north, such as Salta, La Rioja provinces?

I'd like to know.

 

Best regards

Wed, 05/22/2013 - 21:49 | 3590296 pauhana
pauhana's picture

San Juan, Mendoza Province.

Wed, 05/22/2013 - 22:03 | 3590353 TNTARG
TNTARG's picture

Oh yes, Gioja's land.

San Juan is a province, Mendoza is another one. Gioja is the governor of San Juan.

That I can confirm: Gioja and Barrick Gold. They're "associates". As you know, Argentina is providing some of the gold on the market :)

Both (Gioja and Barrick) are corrupted, as far as I know.

As always, to have a corrupted politician, it takes a corruptor "investor". Corporations are at the corruptor's ranking top. :)

Just google "Barrick Gold" and "corruption" and you're gonna see how global corpration's corruption works. You can also google "Barrick Gold" and "contamination", "environment", etc.-

 

The gold traded isn't for free, folks. It has many costs: political, financial, environmental costs. Nothing new.

 

Wed, 05/22/2013 - 16:34 | 3589326 toadold
toadold's picture

In the US black market iw guessed to be at about 28% and growing. Last thing that I read. I'd guess that a lot of that is drug dealing but small retailers have been keeping double books for decades so they could stach Christmas sales money to avoid the quarterly tax bites and have enough to get them through the rest of the year.  Not as much construction going on but a lot of what gets done is more liekly to be done  by "sub" contractors that get listed as some other expense.  Oh what fun times we seem to be headed for.

Wed, 05/22/2013 - 16:32 | 3589317 AnAnonymous
AnAnonymous's picture

It is hard when you live next door to the ultimate consumption sink in an 'american' world.

Better to be prepared.

Wed, 05/22/2013 - 16:28 | 3589306 thomcat00
thomcat00's picture

This would be laughable were it not so frightening.

 

I'm a clueless n00b to 'TNTARG' mentioned in the comments. Please explain in crear engrish?

Wed, 05/22/2013 - 15:26 | 3589089 kchrisc
kchrisc's picture

Damn Argentinians just don't learn and this time there won't be a world economy to bail them out. As a matter of fact they are going to be doubly fucked: First by their own criminal government in Pesos and then by the criminals in DC in dollars.

If it weren't so tragic, it would be funny.

More proof that history doesn't repeat government does.

Wed, 05/22/2013 - 15:09 | 3589017 BritBob
BritBob's picture

Argentine politcians lie about most things and certainly stretch the truth when it comes to the history of the Falklands. The British claimd the islands in 1765. For long periods the islands were uninhabited. The British returned to the islands in 1833 and asked an illegal Argentine garrison to leave but the majority of settlers chose to remain. Only 5 settlers 'chose' to return to what is present day Argentina. This is in contrast to the Argentine government verison of a population forcibly removed. Argentina's Falklands sovereignty claim is baseless this is why their government will not seek a judgement in the ICJ but they keep on spinning that old 'Malvinas Myth' everytime their economy is in the mire. They also state that the Falkland Islanders have no right to exist and that they are implants - this is against all human rights principles. The islanders are no more implants than Argentines are.

Wed, 05/22/2013 - 15:29 | 3589110 kchrisc
kchrisc's picture

"Argentine politicians lie about most things" LOL

All politicians lie about EVERYTHING, always and all the time.

They lie because they are parasites living off the backs of others and all their excuses to the contrary are lies--they are a lie.

Wed, 05/22/2013 - 15:09 | 3589013 BritBob
BritBob's picture

Argentine politcians lie about most things and certainly stretch the truth when it comes to the history of the Falklands. The British claimd the islands in 1765. For long periods the islands were uninhabited. The British returned to the islands in 1833 and asked an illegal Argentine garrison to leave but the majority of settlers chose to remain. Only 5 settlers 'chose' to return to what is present day Argentina. This is in contrast to the Argentine government verison of a population forcibly removed. Argentina's Falklands sovereignty claim is baseless this is why their government will not seek a judgement in the ICJ but they keep on spinning that old 'Malvinas Myth' everytime their economy is in the mire. They also state that the Falkland Islanders have no right to exist and that they are implants - this is against all human rights principles. The islanders are no more implants than Argentines are.

Wed, 05/22/2013 - 14:59 | 3588965 samcontrol
samcontrol's picture

so when is tnt showing up with her bullshit propaganda?

Wed, 05/22/2013 - 14:45 | 3588895 Whiner
Whiner's picture

These poor sheepl never had, nor will they have a violent revolution. They will remain black market serfs. A benevolent King would be better. Or just a king.

Wed, 05/22/2013 - 22:55 | 3590561 Milestones
Milestones's picture

Jee whiz--and owning guns is not allowed. Merica, better wake up!!         Milestones

Wed, 05/22/2013 - 14:32 | 3588841 BeetleBailey
BeetleBailey's picture

Had an Argentianian pear for lunch today.....yummy.

Hot women there. Good beef. Coastline.

Fernandez blows.....so does Argentinian government............has for decades.

Wed, 05/22/2013 - 13:47 | 3588603 otto skorzeny
otto skorzeny's picture

Another S American country firmly in the grips of socialism with their "$ for nothin'-chicks for free " promises-coming soon to a N American country near you. The irony of a Greek citizen questioning someone else on monetary policy is pretty rich.

Wed, 05/22/2013 - 22:29 | 3590464 TNTARG
TNTARG's picture

Lucky you, living in such a freedom, enjoying such liberties. As for me, I wouldn't go to a N. American country even if they paid me to.

Down here no govt agencies can shut to "suspects" as up there. And I don't feel good having my country bombing innocent people around the World or demolishing down towers and killing their own people as it happens up there, nor running illegal prisions, torturing, false flagging operations and so on. Our former dictators and torturers are under trial or serving the rest of their life in prison. Not to mention their dictatorships were possible because were backed up by the US and the UE.

Truth is truth, pal. But if you feel comfortable lying to yourself, be my guest.

Wed, 05/22/2013 - 13:25 | 3588538 akak
akak's picture

Waiting for the Kirschnerite TNTARG, or whoever he, is to come roaring in here to heatedly deny the 'scurrilous lie' of 20+% Argentine inflation.  Anything to kneejerkedly defend the latest Peronista in office.

Argentinians, it seems, never learn. Just like Americans.

Wed, 05/22/2013 - 20:58 | 3590122 AurorusBorealus
AurorusBorealus's picture

It is a lie.  And I am certainly no Peronista or Kirschnerite.  I am a pragmatist and have no real political ideology at all.

Wed, 05/22/2013 - 18:47 | 3589692 TNTARG
TNTARG's picture

I know better, my friend. And I'm no "kirschnerite" - by the way, it's Kirchner - nor government. As I said many times, I run my own business, I'm a free person and I have my own inflation statistics made up from my own trade papers: no index, just prices comparison and averages. Simple math. The inflation rate for my business 2012 was 17%. My employees got (in the same period) they wages increased by 26%. I had no trouble to pay it.

That can explain a lot of undeniable realities about Argentina since 2001.

For instance, we've no riots and even international agencies controlled by corporations recognize South American growth and El Pais, which is always a hard critic of Argentina, says things like this:

http://blogs.elpais.com/eco-americano/2012/07/qu%C3%A9-pa%C3%ADses-creci...

You're free to believe what you want. As a businesswoman, I stick to real economy. Best regards.

 

 

Wed, 05/22/2013 - 20:04 | 3589907 AurorusBorealus
AurorusBorealus's picture

Wolf, from Testosteronepit, has a girlfriend or something in Buenos Aires, a PhD in economics, I think she is, probably a spoiled little American brat, who does nothing but complain about everything in Argentina.  I grow tired of disputing his outrageous claims about Argentina, which are even more ridiculous than the things the government says.  I live here, buy things here every day, and I can tell you that the price of consumer goods has increased about 13% this year.  All I can hope is that Wolf´s girlfriend finally gets tired of complaining about Argentina, quits her job in the university in Buenos Aires, and returns to the U.S., so I can stop reading this drivel every day.

Wed, 05/22/2013 - 15:52 | 3589190 TheFourthStooge-ing
TheFourthStooge-ing's picture

akak said:

Argentinians, it seems, never learn. Just like Americans.

The heat is on for a certain category of 'south' 'americans'.

Entering the 'south' 'american' game is no certainty they will be some room for all the 'south' 'american' wannabees.

'South' 'americanism', that human natural thing, so natural it can't be spread to every human being.

The lack of contemplation is once against typical to 'south' 'americans'.

It does not even refer to history outside the 'south' 'american' realm. But simply to remember what they 'south' 'americans' ranted against at their origins.

One can guess you never know how duplicitous a human being can be until you've met a 'south' 'american'.

And that gave birth to Easter Island, the mecca of 'south' 'americanism' on Earth.

Signed: AnAnonymous

Wed, 05/22/2013 - 14:42 | 3588879 machineh
machineh's picture

TNTARG is a she.

She stopped showing up to post Peronist hasbara when the government's checks started bouncing.

Wed, 05/22/2013 - 19:00 | 3589732 TNTARG
TNTARG's picture

I didn't stop, machineh. I'm doing well.

I'm no "peronist". I'm an educated woman (graduated in Italy, Argentina, the US) and run my business freely. It's a wonderful way to live, being free. As I'm a critical thinker, nobody leads me nowhere against my will.

Having the EU citizenship and of course, passport, I can assure you business related to REAL economic activities are much better in Argentina than in Europe.

P.S.: I don't invest in printed papers of any kind.

Wed, 05/22/2013 - 21:27 | 3590208 Bazza McKenzie
Bazza McKenzie's picture

Sounds like one of those rootless cosmopolitans.

Wed, 05/22/2013 - 22:17 | 3590426 TNTARG
TNTARG's picture

Oh, I love Argentina. I was born here. Many places to live in freedom. Wonderful landscapes. Excellent food. In love with Patagonia. Federal government doesn't bother you. Educated people, freedom of education (free schooling even at the universitary level but private education allowed), acceptable healthcare (again: free healthcare but private services allowed). Taxes aren't so high. I must remark, though: I believe in hard work, in workers' rights and I know one of the keys of good business is having your workers on your side. That can be achieved with respect, consideration and sharing some of the profit with them. Not considering your workers "untangible assets" but persons, people. Your pals in your business. Plain, simple, good.

If you pretend to squeeze your workers, Argentina isn't a good place.

Wed, 05/22/2013 - 14:28 | 3588825 Zerozen
Zerozen's picture

Yes, but you forget that since Kirchner got elected, Argentina has become a serious country. /s

Wed, 05/22/2013 - 12:52 | 3588404 toadold
toadold's picture

It would be interesting to get an estimate or even anecdotal estimates of how much the Argentine economy is now black or grey market to avoid the the tax that inflation is.  

Wed, 05/22/2013 - 20:55 | 3590108 AurorusBorealus
AurorusBorealus's picture

I would estimate about 25-30% of the economy is "en negro."  This is probably a fairly accurate estimate.

Wed, 05/22/2013 - 16:53 | 3589366 TraderTimm
TraderTimm's picture

Some locals have turned to bitcoin as a anti-inflation hedge. Given the climate over there, I'm not surprised in the least.

Wed, 05/22/2013 - 14:40 | 3588870 machineh
machineh's picture

They do estimate the percentage of employment without benefits -- 'trabajo en negro.'

It used to run around 40 percent. Probably a bit lower now.

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