Wednesday, October 23, 2019
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ARGENTINA | 20-04-2019 08:59

Government unveils raft of measures to tackle rising inflation

Macri administration freezes prices and utility rates until October, as economic downturn continues to cast long shadow over president’s re-election hopes.

Attempting to counter a spike in the inflation rate and drop of consumption that threaten his chances of reelection in October, the Mauricio Macri administration this week announced a set of “economic and social” measures to “protect the Argentines” and “win” the battle against soaring prices.

The plan will see government expenditure of about US$9 b i l l i o n , which will be covered by higher tax collection in the future and savings in some state areas, officials said.

“These are short-term measures that seek to provide some relief to the population until the real solutions start working,” Macri said, announcing the measures on a recorded video while visiting a family. “We’ll win the battle against the inflation. I’m stronger than ever.”

The government agreed with leading supermarkets that the price of 60 essential products of the food basket will be frozen for at least six months.

The list includes 16 manufacturing companies of rice, sugar, milk, yoghurt, flour, tea and coffee, among others, whose products will be available at 2,500 outlets as from April 22.

At the same time, the Macri administration agreed with slaughterhouses to offer beef cuts at 149 pesos per kilo (120,000 kilos weekly), which will be available at the Central Market and at other retail outlets. The meat will be available in about 15 days after the implementation of the new scheme.

TARIFAZO-NO MORE

The government will also freeze household electricity and natural gas bills as well as public transport fares for the rest of the year. The hike for natural gas applied this month will be the last of the year, while the planned electricity increase will be absorbed by the state.

Mobile phone companies will also maintain the price of their pre-paid rates for five months until September 15, a measure benefitting some 35 million active phone lines. The monthly mobile phone plans were not included in the announced scheme.

“We are entering into a new phase. Currency instability is now something of the past, which guarantees a lower inflation rate,” Economy Minister Nicolás Dujovne said at a press conference. “We want to provide some relief to the incomes of Argentine families.”

The set of measures also included 10 to 25 percent discounts for a total of 18 million pensioners and recipients of family benefits and social plans in supermarkets, tourism, domestic appliances and construction materials, as well as 20 to 70 percent discounts on medical drugs for around five million recipients of child benefits and social plans, mostly in Buenos Aires province. Pensioners will also have access to a new credit line, which will mean an investment of 124 billion pesos from ANSES social security administration.

At the same time, the government will launch a new set of mortgages through the Procrear housing scheme. The state will provide 20 percent of the value of the property through a non-refundable subsidy, which will average 550,000 pesos. Other options could also be added to the plan later on.

“Argentina has one of the smallest credit systems in the world. There are no magic solutions. Once inflation can be lowered, the access to loans will improve,” Dujovne said, alongside Social Development Minister Carolina Stanley and Production and Labour Minister Dante Sica.

A new fair competition law will soon be sanctioned by decree by the Macri administration to avoid “abuse of dominant positions or possible monopolistic behaviour by large companies.” Through the new law, the Trade Secretariat will have more scope to sanction unfair competition and protect consumers.

Finally, all companies exporting up to US$50 million will be exempted from export duties if they can improve on their 2018 averages of sales abroad.

SHORT-TERM

Economists reacted quickly to the announcements, claiming they were based on a short-term perspective and only thinking of reaching the October presidential elections in better shape.

“They are short-term with political purposes. The impact in economic terms will be low. It’s just a way to keep postponing the structural problems,” economist Diego Martínez Burzaco said. “Saying there won’t be utility hikes means that all of us will eventually pay them through more taxes and debt.”

Meanwhile, José Ignacio Bano, economist and manager at InvertirOnline, said the most meaningful decision was freezing electricity, transport and gas prices, while questioning the list of 60 products that won’t be marked up in the supermarkets.

“It’s a cosmetic measure, it won’t have a real impact,” he said. “On the other hand, the mortgage loans for the Procrear scheme could do some good. The state will be paying for 20 percent of the house or apartment.”

In line with Bano, Federico Furiase, economist at the Eco Go consultancy, said the decision to freeze consumer goods never works as companies anticipate the measure and increase prices before the announcement is made.

“It’s all short-term as part of an election year,” he added.

In a similar vein political analyst Ignacio Zuleta commented: “These measures have been announced because there’s an election at the end of the year and the president is hoping for a second term. The aim is to show that the government is trying to resolve the population’s problems.”

CONSUMPTION DROPS

The government plan was announced in the same week as March’s inflation data of 4.7 percent was revealed, sending alarm-bells ringing mong Macri administration officials. Prices have now increased 11.8 percent increase in the first quarter of the year and 54.7 percent in the last 12 months.

Consumption in supermarkets also dropped 8.7 percent in March compared to the same period last year, accumulating a 7.3 percent decline so far this year, according to a report by the consultancy Scentia.

It was the largest drop so far this year and the month with the most significant decrease since 2003.

On the streets, citizens said they were feeling the pain of the downturn.

Carlos Alberto Chávez, owner of a small grocery store, said he was unimpressed by the measures.

“It affects me emotionally to see that one continues working, fighting, taking care of work and that the economic situation does not improve at all. We did not expect what happened, we expected a better, more stable economic situation,” he said.

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