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| Photo by Emiliano Libman (via flickr) |
AND STILL
PEOPLE SUPPORT ULTRA CONSERVATIVE “BUSINESS FRIENDLY” PRESIDENT MACRI…. THE
QUESTION IS FOR HOW LONG
By Elke Wakefield via The Argentine Independent
In most parts of the world,
people can barely imagine what living with double-digit inflation would be
like. So how do ARGENTINE'S cope when inflation is running above 40%?
For many of us, it’s hard to
imagine a place where cars appreciate in value and houses are bought in cash.
Where, from one quarter to the next, your rent may go up 20%. Where you can buy
a bike, a mobile phone and a television in 50 interest-free installments.
THIS
IS ARGENTINA, A COUNTRY WHERE ECONOMIC INSTABILITY TENDS TO FORM THE RULE, NOT
THE EXCEPTION.
If you ask a local about the economy, they’re
likely to roll their eyes and tell you another ‘crisis’ is either already happening
or on the way.
One of the perennial problems
that ARGENTINA faces is high inflation. According to World Bank Data, the
average rate of inflation in ARGENTINA since 1991 is 20% (this figure does not
include the years 1975-1990, when the country experienced hyperinflation of up
to 5,000%). There were eight years of low inflation in the 1990s, but that
decade ended disastrously: in 2001, ARGENTINA declared what was at the time the
largest sovereign default in history (GREECE has since snatched the title),
unleashing unprecedented social and economic misery.
EVEN
IN THE CONTEXT OF A PERMANENTLY HIGH-INFLATION ECONOMY, 2016 IS MANAGING TO
STAND OUT.
Consumer
prices shot up by approximately 23% in the first five months of this year
alone, according to the City of BUENOS AIRES, and annual inflation in the
nation’s capital is projected to be around 40% (compare this to neighboring CHILE
where inflation last year was 4.6%).
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The figures are fantastically
high, exceeded only by conflict zones like UKRAINE or crisis-stricken
VENEZUELA, but they are real. How do people cope? What is it like to live in a
place where the money that bought you a kilo of bread in December buys you only
half a kilo the following May?
“Sometimes I sit down and do the
accounts and think ‘did I make a mistake?’” says Nilsa, a softly-spoken office
administrator who lives in BUENOS AIRES Province with her two children and
husband.
Florencia, her co-worker, a
spirited blonde in her late thirties, is a little more blunt: “They’re paying me on Saturday. Today is
Wednesday. I don’t have a peso until then.”
OVER
THE LAST SIX MONTHS ARGENTINA HAS JUST BEEN GOING BACKWARDS
Nilsa and Florencia work at a
private medical clinic in Barracas, a lower middle class neighborhood in the
southern part of BUENOS AIRES. They earn about $14,000 (around US$1,000) per
month working full-time, ostensibly a decent wage considering that ARGENTINA’S
minimum wage is currently about $6,800 per month).
But, even though they say they
haven’t really changed their spending habits, this year the money they earn
seems to evaporate with ever-increasing rapidity. “Over the last six months
we’ve just been going backwards,” says Florencia, who lives with her
14-year-old son in QUILMES, also in BUENOS AIRES PROVINCE. “I live day to day,
worrying about everything.”
It’s
no surprise she’s feeling the pinch: according to the Foundation of LATIN
AMERICAN Economists (FIEL), an average four-person family would need an
additional $3,353 (US$240) per month in income in comparison to this time last
year just to cover the cost of their basic needs without falling into poverty.
Florencia
copes by cutting back wherever possible. “I used to buy a kilo of milanesa –
now I buy half a kilo,” she says. “I use everything to the last drop –
soap, toothpaste, shampoo – before buying a replacement. And we eat meat only
very rarely.”
“Yes, we don’t get together for Asados
anymore,” sighs Nilsa, referring to that meat-intensive staple of ARGENTINE
identity and cuisine. (Macris administration lambasted the previous government
because the farming sector reduced the cattle stock in favor of soya seeds,
thus making meat expensive for the “meat loving” ARGENTINES, but at least
people were still having their Asado each weekend. Now 6 month into office ARGENTINES
are at the verge of becoming vegetarians due to high inflation and astronomic
meat prices!)
THE
PATH OF NEOLIBERALISM
For Nilsa, managing inflation is
almost like a second job. She cannot do her shopping at a single supermarket
because they are too expensive, so she scours the local CHINESE supermarkets
and independent stores looking for the cheapest prices. The purchases she makes
are piecemeal because she can’t afford to buy everything at once. “You have to
have time and patience to hunt for cheaper prices,” she says.
Many people I spoke to echoed
Nilsa’s statement, lamenting the corrosive effect of inflation on all aspects
of their life. Time, energy and money that would otherwise have gone into
socialising, studying, travelling, going out, dreaming, planning and creating
are instead invested in daily economic survival.
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| Some fruit and vegetable stores are now accepting credit cards and payments in installments (Photo via SanJuan8.com) |
Esther, 36, originally from PARAGUAY,
a cheeky, maternal type with dimples, three kids and an endless supply of
wisecracks, is not despairing. But she makes clear that high inflation has
narrowed her opportunities: “We don’t go hungry, but we don’t go out,” she
says.
Esther lives in QUILMES and earns
minimum wage at a restaurant in PALERMO. Last year, when she returned to work
after having her third child, she and her husband began to enjoy the
possibilities and freedom afforded by two salaries. “I always wanted my
children to have the same opportunities as other kids their age. So last year
we did something most weekends. We went to the cinema, to the museum; we went
away for the weekend.”
However, this year’s rampant inflation
has put an end to this. “We have to make savings wherever we can, so we will
leave all that for this year.”
‘CUOTAS’
When I ask Florencia if she has
savings, she looks at me like I’m mad. I try a different line of questioning:
“Do you have any debts?”
“Do I?! Pay for purchases
outright? Forget it”, says Florencia, “I pay for everything in installments”.
This brings up a particularly ARGENTINE
phenomenon: the ‘cuota’, or installment, system.
In order to encourage spending in
an economy where high inflation means wages lag behind the price of goods, many
businesses offer interest-free or low-interest payment plans over long periods
of time. A walk down your average street in BUENOS AIRES will reveal enough
‘specials’ and ‘offers’ to make BLACK FRIDAY pale. Signs advertise electronic
goods, appliances, holidays and even groceries in anywhere from three to 50
interest-free installments.
The cuota system is all-pervasive
and, given double-digit inflation, it is often seen as a good financial deal.
Last year, when things weren’t quite as tight, Florencia went to BRAZIL for one
week with her son. She is paying this trip off in 12 interest-free monthly
installments of $1,800, the fixed sum looking ever smaller next to rising
prices elsewhere.
Since 2014, the government has
also pushed this system with Ahora 12, a credit program that enables
cardholders to purchase goods in 12 interest free payments (“Because when one ARGENTINE
consumes, many more keep their job”). The program extends to a range of
domestically manufactured products – everything from mobile phones to white
goods to bus tours – and there is no ceiling on the price of what you can buy.
However, the plan is not for
everyone, and the program’s reach is limited by the fact that many low-income
earners are wary of credit cards and financial institutions. Memories of the
2001 crisis, when the government froze bank accounts, combined with the
vagaries of the ARGENTINE economy, means they prefer to avoid getting into
debt.
Esther says she has never used a
credit card and is not interested in acquiring one: “My husband and I pay
everything in cash. We’ve seen other people fall into credit card debt and they
can’t get out.”
She says she wouldn’t sign up to
the program: “It’s all fine at the start, but there will be a moment when
everything goes bad and you have to maintain that account.”
TARIFAZOS
The 2016 spike in inflation is
caused, in large part, by recent increases in tariffs on basic services like
water, electricity, gas and public transport. Referred to as the tarifazos (in SPANISH,
the suffix ‘azo’ can be added to words to convey a sense of hugeness), they
have seen some staggering price increases: gas has gone up, on average, by more
than 300%; water by more than 300%; public transport has doubled.
The new government says that,
over the long-term, these tariff increases, alongside other pro-market reforms,
will help normalize the economy and cure the country of its chronic inflation
problem. Most people I spoke to agree the price increases were necessary. Since
the 2001 economic crisis, when unemployment hit 40%, the government has
subsided these basic services by very high amounts. To take the example of
electricity: until this year, ARGENTINES paid 1.7 US cents for every kilowatt
of energy where their CHILEAN and BRAZILIAN neighbors paid 11.9 and 16.5 US
cents, respectively.
Still, it’s a bitter pill to
swallow. Many say the tariff hikes are “very sudden” and cut deep into the
pockets of working class people. “the increase in tariffs is ok because before
we weren’t paying enough,” says Nilsa. “But all at the same time? No.”
“Everything has doubled in price.
Electricity water, gas, public transport”, says Florencia. Last year, she paid
an average of $400 per month for electricity; this year the bill is nearer $800
per month. “I can live without heating or air conditioning. But the kid that
plays all day in your house? You can’t just turn off their heating in winter.”
The utility hikes have also put
pressure on many small and medium businesses, which struggle to absorb enormous
gas and electricity price increases when high inflation means people buy less.
KILLING
SMALL AND MEDIUM SIZE ENTERPRISES
The ARGENTINE Confederation of
Medium-Sized Businesses points to the case of a ceramics factory in CHUBUT
whose gas bill rose from $33,400 (US$2,403) in March to $421,000 (US$30,300) in
April. They argue that, even with a government-imposed cap of 500% on this
increase so that it is reduced to $200,300, the business has become unviable.
Even shops that do not rely on
intense energy usage are struggling to survive. Walking home late one evening,
I stop at one of those kiosks that is so permanently open it has a metal grill
over the entrance. The vendor is an old, elfin lady, swaddled in clothes and
scarves against the evening chill. I need only say the word ‘tariffs’…
“They’re killing me. The prices
have gone up so much. Last year my electricity bill was $500, now it’s $1,100.
And all I have is this light bulb and the fridge. I freeze in winter and bake
in summer.”
I return the next day and talk to
her husband, Oscar (“like the awards in the UNITED STATES!”). I ask him about
the kiosk’s takings. He laughs, “nothing but change”. He doesn’t complain but
he’s clear-eyed about their situation: “We make it to the end of the month and
that’s it.” Framed by the miscellany of the classic ARGENTINE kiosco –
chocolates, lollies, tissues, toys, cigarettes, notepads and chewing gum –
70-year-old Oscar smiles ruefully and tells me he wishes for only one thing:
“Good health, so I am able to keep working”.
SAVING
IN CARS
Oscar and Mari are some of the
many ‘retired’ ARGENTINES I speak to who continue working full time. They have
no choice. Mari can’t live on her pension (“how are you going to live on $3,800
per month?”) and, as a result of the 2001 default and years of persistently
high inflation, she and Oscar have no savings or investments.
“We used to have two cars, a
factory and a second house in MAR DEL PLATA”, says Oscar. “Now we have one
house and the kiosco.”
This is a constant theme in the
conversations I have: the way in which high inflation makes planning for the
future, saving and investing very difficult.
“Why did you have to remind me?”
says 40-year-old receptionist Patricia clutching her head dramatically,
half-joking, half-serious. She needs to renew her rental agreement in August
but high inflation means the numbers could go anywhere: “I don’t know how much
money I need to get together. That’s stressful.”
Her current plan is to use her
aguinaldo – a mandatory “13th month” bonus all employers are required to pay
their employees – to pay the difference. “I won’t use that money to buy clothes
or paint the house. I will use it to renew the contract for another two years.”
Patricia tells me she is keen to
have children but her financial situation makes this impossible. The money she
earns disappears quickly in the swirl of rising prices; even if she could put
aside part of her salary each month, the corrosive effect of inflation of
savings – especially when prices rise faster than interest – would make this pointless.
Finding ways to preserve wealth
in a high inflationary environment – where holding on to money is pointless –
generates some intriguing results.
I am a little surprised when,
after asking Nilsa about her savings account, she tells me about the savings
scheme she entered into to buy a car. Purchasing an expensive item? “For me
that’s saving,” she says.
An economist I speak to points
out that in the topsy-turvy world of ARGENTINE economics, high inflation means
that some middle class people buy cars as a means of storing wealth. Although
the value of the car drops by 20% the moment they take it out of the store,
high inflation means that, over time, the loss is absorbed and they can sell
the car for the price they bought it for.
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| Annual inflation reached 44.4% in May 2016 (Image via BA Office for Statistics and Censuses) |
It works like this: instead of
putting the extra money you make each month into a bank, where it will just
lose its value, you enter into a “savings plan”, paying off a new “0-km” car in
up to 84 installments, which are updated to reflect the value of the car, which
accompanies inflation. Although this implies the price of the installments
increases each month, it also means that the amount you have already paid off
is also updated to reflect the inflated price. In this way, money invested in
the plan maintains its value and you are insulated from the effects of high
inflation. If you sell the plan before paying off all the installments, you can
even profit.
Another option for those ARGENTINES
with savings to protect is to turn to foreign currencies, which are perceived
as more stable. For example, the vast majority of ARGENTINE property is bought
and sold in US dollars. This practice is so ingrained that, when the last
government introduced currency controls restricting ARGENTINES from purchasing
US dollars, the property market came to a grinding halt.
By reducing government subsidies,
eliminating ‘inefficient’ taxes, offering tax amnesties to attract offshore
wealth back into the country, and restoring confidence in official inflation
data, the new business-friendly government hopes to reduce inflation to 5% by
2020.
ARE PEOPLE OPTIMISTIC?
No one I spoke to was expecting a
miracle. But they weren’t about to sell off their assets and immigrate to URUGUAY
either. They’ve seen it all before – the apocalypses and the rebirths from one
administration to the next – and know that that, even if anything can happen,
life goes on.
As Florencia and Nilsa’s
colleague, Gladis, puts it to me: “ARGENTINES are resilient. We’ve seen it
before. We can survive anything.”
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