Rice, milk, diapers, coffee, everything is 70% cheaper than in Chile. It more than offsets the cost of a day’s shopping.”
These are the words of a Chilean who recently came on an expedition to ‘sweep the mart’ through Mendoza, which borders Argentina. According to local media, an average of more than 5,000 Chileans enter Mendoza every day for this purpose. Nearly 200,000 Chileans crossed the Argentinian border in April alone, and 80% of them are said to be for shopping purposes.
On the other hand, Argentines are turning away in front of the supermarket shelves with a sigh. This is because the country’s currency is no better than a piece of paper due to the first hyperinflation since 1991 (uncontrollable inflation, such as three-digit inflation). It is a shopping paradise for tourists who spend dollars, but ‘inflation hell’ is unfolding for Argentinians.
Citizens are looking at the prices of products at a mart in Buenos Aires, Argentina. Due to the murderous inflation rate, Argentinian citizens are feeling the burden of purchasing daily necessities. AFP = Yonhap News
“Toilet paper will be shredded” Exchange to dollars on payday
Argentina’s year-on-year inflation rate has maintained more than 100 percent since February, recording 108.8 percent last month. The money that bought one chicken a year ago can only buy half of it now. It is even said, “Some people use banknotes (10 pesos) to wallpaper because it is cheaper than buying wallpaper” (Financial Times). Inflation is a global phenomenon due to the aftermath of the Corona 19 pandemic and the war in Ukraine, but given that inflation rates in Korea and the United States are in the single digits, Argentina’s inflation is on a different level.
The value of the Argentine peso against the US dollar has plummeted. According to NPR , one US dollar, based on the official exchange rate, traded for 100 pesos a year ago, but is now over 200 pesos. In the black market, it is said that the peso exchange rate soared to 500 pesos per dollar.
A clerk counts Argentine pesos at a supermarket in Buenos Aires, Argentina. The value of the Argentine peso against the US dollar has plummeted. AFP = Yonhap News
For this reason, more and more Argentines rush to the bank on payday to exchange their pesos for dollars. In one case, a robber who broke into a supermarket in Paraguay rejected an Argentinian pesos handed out by a clerk, saying it was “no use”.
In response, the Central Bank of Argentina raised the benchmark interest rate to 97% on the 15th. It is an effort to control inflation by collecting money that has been released in the market. It is the fourth rate hike this year alone, but there are concerns that it will only increase confusion in the market.
Blocking the hole in the finances through ‘spreading’
Leftist President Alberto Fernandez, who came to power in 2019, claims to inherit ‘Peronism’. Peronism, named after former president Juan Perón, is a characteristic of Argentina’s political and economic system, which refers to ‘government-led massive free welfare’. Since democratization in 1983, the Peronist regime has been in power for 26 of the past 39 years. With each election, populist (popularism) promises and policies were poured out, and the fiscal deficit became chronic. As a result of the excessive use of tax cuts by previous Peronist regimes, only 15% of workers in Argentina now pay income tax.
During the COVID-19 pandemic, President Fernandez increased various subsidies and welfare, including cash payments, and lowered taxes. The resulting fiscal deficit was covered by ‘money printing’. The massive release of money into the market caused the value of the Argentine peso to plummet and inflation to worsen. The inflation rate compared to the same month last year was 26.3% in May 2018 alone, but it soared to three digits since last February.
Graphics = Younghee Kim 02@ joongang.co.kr
To make matters worse, Argentina suffered its worst drought in 60 years this year. Argentina is one of the world’s leading soybean exporters메이저놀이터, and agriculture plays an important role in its economy. However, it is expected that soybean production will be at its lowest level in 23 years due to a record drought.
The damage of the economic crisis was borne by the people of Argentina. The share of the poor in the total population has soared from 20% in 2017 to 40% recently. As food prices change day by day, there are many stores that have blackboards and fix them from time to time. Aldo Albram, a local economist, said, “When people from neighboring countries come to Argentina and buy everything, it’s because it’s too expensive for us and too cheap for them.”
A woman walks by a butcher shop in Buenos Aires, Argentina. As product prices rise day by day, many stores revise their prices on blackboards or paper. AP = Yonhap News
Opposite teacher of populism…”Financial deficit management”
Some believe that Argentina, which has gone through nine national bankruptcies (default), is facing its 10th default crisis. Argentina is in huge debt after receiving more than 20 bailouts from the International Monetary Fund ( IMF ) including last year.
Argentine President Alberto Fernandez. Reuters = Yonhap News
President Fernandez, seemingly pressured by this situation, announced last month that he would not seek re-election in October. It is interpreted as an unavoidable choice given the circumstances, such as the triple-digit inflation rate and the sharp exchange rate, but it is also expected to add to the political chaos in Argentina.
Aside from Argentina, murderous price increases and economic difficulties are common in Central and South America, such as Venezuela and Nicaragua, where leftist populist regimes have been in power.
Seong Tae-yoon, an economics professor at Yonsei University, said in a phone call with the JoongAng Ilbo, “As the root cause of today’s Argentine crisis is lax fiscal management, we need leadership to restore fiscal soundness and public awareness not to be swayed by populist policies in order to stabilize prices.” At the same time, he emphasized that Korea also needs effective management of the extent of its fiscal deficit and the speed of national debt growth.