You just cannot keep a good man down – having hogged this column only three weeks ago, the new Security Minister Aníbal Fernández (why must the former justice minister make every portfolio he heads sound so Orwellian?) did his level best to retain the limelight this week with a supremely outrageous tweet against a press colleague who had not personally challenged him in any way.
Even taking the most charitable view of his gratuitous intervention – that he had been merely reminding the La Nación cartoonist Nik that he was throwing stones from a glass house in criticising the electioneering of Buenos Aires Province Governor Axel Kicillof’s free graduation trips since the ORT college of his daughters was equally the beneficiary of state subsidies – it was inexcusable. Not least because his information was simultaneously too good and deficient – on the one hand, all too familiar with the personal information of the Dzwonik family (again Orwellian) and all too willing to divulge it but on the other hand, he was misinformed in spreading the fake news of ORT subsidies. An abuse of his ministry’s formidable intelligence facilities against organised crime (whose budget exceeds AFI intelligence itself). But even if his intention had not gone beyond “debating” an inconsistency, he chose an incredibly clumsy way of expressing himself – flaunting knowledge of where the children went to school is a mafia message as clear as if he had made Nik “an offer he could not refuse.”
Nice try, Aníbal, but while his little outburst might qualitatively have been the pits, it does not compare among recent news with the crackdown on maize exports in terms of concrete or long-term damage to the country and far less with the price freeze slapped on 1,247 “items of prime need” (a list stretching to Coca Cola and Chivas Regal – should we conclude that whiscola is the favourite tipple of the incoming officials?) by the new Domestic Trade Secretary Roberto Feletti in midweek after just a couple of days in office. At the IDEA business symposium starting the same day, Chamber of Commerce president Mario Grinman traced the failure of price controls all the way back to the Roman Emperor Diocletian (reigned 284-305 AD), somewhat simplistically adducing the decline and fall of the Roman Empire to that experiment, but he fell over two millennia short – the first price curbs date back to the Code of Hammurabi in Ancient Babylon before 1750 BC.
The holes in price controls are an all too familiar story in Argentina. All sorts of routes for bypassing them, of which the best-known is the invention of new brands by tweaking the volume or ingredients of the frozen product. But the ultimate problem confounding price controls is that even their success against all the odds also contains the seeds of failure. In the event of a frozen price being sustained for any length of time, that product invariably disappears from supermarket shelves while it goes against all the laws of economics for manufacturers to make their heaviest investments in boosting the production of the item carrying the lowest price.
The history of price controls in Argentina does not stretch back to 1750 BC or even to 1750 AD but it goes back long enough. Such controls presuppose inflation by definition and that is relatively recent although, contrary to widespread belief, inflation was not born with Peronism – there was double-digit inflation in the first year of the last century and at least three other such years in the first four decades of the century. But inflation did not become chronic until the times of the hero of tomorrow’s Peronist Loyalty Day. With inflation hitting 39 percent amid a severe economic contraction in 1952, the proactive Peronist state implemented its second five-year plan pegging price increases to productivity – inflation fell to four percent the next year but was back in double digits by 1955.
Within a month of the return of Peronism, a price freeze was already part of José Ber Gelbard’s social pact in mid-1973 bringing the 1972 inflation of 60 percent down to 17 percent but the ice was starting to crack after only four months and the year 1974 ended with 40 percent inflation although the final collapse did not come until the Rodrigazo of mid-1975 (a year closing with 180 percent inflation).
The next chapter in this saga was the Austral Plan, the subject of this column last July 24 following the death of its author Juan Vital Sourrouille. By early 1985 the inflationary plateau since the 1980-1982 financial crisis was creeping up to levels of 30 percent with experiences of hyperinflation elsewhere in the world in countries ranging from Bolivia to Israel. Hence the Austral Plan – a shock package whose basic elements included a total wage and price freeze, the elimination of all index-linking and a halt to all money-printing with inflation plunging from 30 to six percent in the first month of the new austral currency. But inflation gradually climbed back to a monthly inflation of 19 percent by the last month of Sourrouille (March, 1989) while the Spring Plan replaced his Austral Plan – hyperinflation (197 percent in July) soon rocked the country. This was followed by convertibility by 1991 with the result that double-digit inflation did not return until 2005. The notorious Domestic Trade Secretary Guillermo Moreno (2006-2013) took his time progressing towards a blanket price freeze, which only came in his last months in office – in large measure because he could ignore the actual price trends with the monthly inflation figures precooked by the INDEC national statistics bureau. Finally, price controls were against all the principles of Mauricio Macri but in free fall he froze the prices of 60 basic food products for the last seven months of his 2015-19 presidency.
The lessons of both the 1973 social pact and the Austral Plan would seem to be that the stiffer the price controls and the longer they last, the harder the subsequent crash. Price controls have rarely enjoyed more than the short-term success almost always accompanying them but then perhaps nothing more is being asked of Feletti – just to steady the boat for the next four weeks.
Last and perhaps least, Peronist Loyalty Day greetings to any reader who might be celebrating it tomorrow (for its 40th anniversary I interviewed no less than Cipriano Reyes, who lived just two blocks away from the La Plata house where we were then living).