Popular retail outlets in Buenos Aires’ Once neighborhood took a long time to open last Tuesday (5), and when they received consumers, they had placards in their windows warning that all products were 20% more expensive than the registered labels . The delay in opening, as well as the posters, resulted from the fact that shopkeepers no longer knew how much to charge customers.
“Nobody knew if the dollar would rise or if goods would become scarce. On Monday (4th), many stores did not even work because they no longer had a reference price to sell,” said spokesman for the Argentine Confederation of Mediumsized Enterprises (CAME), Salvador Femenia.
Uncertainty has already been high in recent months, but increased after the resignation on the 2nd, a Saturday, of Martín Guzmán, Economy Minister since the beginning of Alberto Fernández’s government in Argentina. In March, Guzmán agreed with the International Monetary Fund (IMF) to repay $44 billion of debt between 2026 and 2034. In exchange, the agency asked the country to reduce the budget deficit by 3% of GDP. this year to 0.9% in 2024. However, Vice President Cristina Kirchner opposed this agreement and caused a crisis in the government. She won the competition.
Fernández announced that Silvina Batakis (who is close to Cristina and is considered to be rather unorthodox) would only replace Guzmán on Monday. “We were without a minister for a day and a half. It seemed nobody wanted (the position). That created a lot of distrust,” said Andres Borenstein, chief economist at Argentine consulting firm EconViews.
Uncertainty has been growing since the beginning of the year as there are signs that the government will not honor the agreement with the IMF, which the body sees as a relatively light adjustment programme. As a result, the dollar exchange rate on the parallel market (257 pesos) is already more than twice as high as on the official market (126 pesos).
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reservations
To make matters worse, international currency reserves are at a very low level. Despite announcing they will reach $42.3 billion, the government does not have that entire volume. According to market estimates, only $3.5 billion are net reserves. This is because Argentines can open bank accounts in dollars in the country. In this case, its funds are not lent and are deposited with the central bank as minimum reserves. As if that weren’t enough, the country needs dollars to import energy, especially now in the winter when consumption increases due to the use of heating. But the price also rose with the war in Ukraine.
Therefore, in order to control the outflow of dollars, the government has increased restrictions on access to the foreign exchange market. Last week it banned the installment payment of dutyfree shop purchases a feature no longer allowed for international tickets. The previous week, she had stipulated that companies will only have foreign exchange to import a 5% higher volume than in 2021.
According to Came’s Femenía, difficult access to the exchange rate has already meant that imported inputs such as raw materials for paper and rubber for tires have become scarce. There is concern that items such as coffee and electronics will be missing.
Hard decision
Marcelo Martínez, owner of the Café Martínez chain, says he has coffee for the company’s 200 units by September. But it stopped selling in supermarkets. “We have inventory problems and have to decide where to sell.”
It was this possibility of goods disappearing from shelves and the dollar continuing to rise in the parallel market that prompted shopkeepers to delay the opening of their stores on Tuesday. “Nobody knows how much to sell because nobody knows when and for how much to replace the goods,” says economist Dante Sica, who was production minister in the Macri government. For Sica, the country should experience stagflation by the end of 2023 when elections take place.
For economist Paula Malinauskas from the management consultancy LCG, an immediate solution seems difficult because the origin of last week’s crisis lies in politics. “Part of the government is in opposition. Cristina wanted to show that she and part of the party disagree with Alberto’s decisions.”
Borenstein says nothing can be done in the short term to save the economy. “The political weakness means that even good ideas don’t get anywhere. Devaluing the currency and raising interest rates when the IMF agreement came about was one thing. Doing it now will probably not work because there is no longer any credibility is.”