President
Mauricio Macri has put the country back on the neoliberal path with
policies that favor big agricultural producers inside the country,
and investors both inside and outside of Argentina.
by
Jon Jeter
Part
4 - A contraction that only global investors could love
This
economy is not identical to the depression that began in 1998, Cooney
said. That downturn was grounded in the 1-to-1 peg between the dollar
and the Argentine peso, which effectively took an elephant gun to
inflation. But the central bank’s interest rate hikes exert the
same contractionary pressures on the economy by drying up lending to
households and small businesses in Argentina. Buying power declines,
businesses have to lay off employees, and the government, grappling
with a shrinking tax base, has to borrow to make ends meet. Argentina
is saddled with more than $320 billion in external debt, equivalent
to 57 percent of Gross Domestic Product, much of it denominated in
dollars.
French
Supermarket chain Carrefour, which employs 19,000 people in
Argentina, announced in April a plan to lay off an unspecified number
of workers as part of a “crisis prevention plan.”
Eduardo
Fernandez — head of an organization known by its Spanish acronym,
APYME, which represents about 10,000 small firms nationwide — told
Reuters that Argentina’s return to the IMF represents a failure of
Macri’s economic policies, which are now clobbering mom-and-pop
operators. He said: “With this rate increase, we can’t request
credit; we are in a very difficult situation.”
Fabian
Castillo, owner of a Buenos Aires shoe factory, told Reuters that
with the cost of essentials like rent, food, and utilities rising,
Argentines are simply doing without extras. “Anyone selling
perfume, clothes or shoes is having a hard time getting to the end of
the month.”
Whether
through raising interest rates or pegging domestic currencies to the
U.S. dollar, the objective is to reduce inflation, which is, to be
sure, not good for anyone. Poor people hate to see higher prices for
a loaf of bread or a bag of rice, but studies have shown that
moderate levels of inflation don’t adversely impact economic
growth. It does, however, impact profits, which is why financiers
have been obsessed with inflation since the 1973 stagflation crisis
in the U.S. that was driven by high wages and high commodity prices.
Milton Friedman and his coterie of advisors from the University of
Chicago — the Chicago Boys as they were famously dubbed — coaxed
the dictator Augusto Pinochet to fix the exchange rate of the Chilean
peso at 1.4 to the U.S. dollar in 1974, months after the General led
a military coup that overthrew the Socialist president, Salvador
Allende.
The
country’s jobless rate climbed to 33 percent.
Today,
Chileans of a certain age jokingly refer to the Chicago Boys
derisively in Spanish as “Si, Cago, Voy,” which translates as
“Yes, I shit, I go.”
***
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