In Argentina prices double with inflation at its highest since ’91

In Argentina prices double with inflation at its highest since ’91
In Argentina prices double with inflation at its highest since ’91
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Argentina may have won the World Cup in Qatar, but its economic problems are only getting worse. The data oninflation in December, released last Friday, was chilling. Consumer prices exploded 94.8% year on year and accelerated to +5.1% compared to November. We haven’t seen such a high figure since 1991. Basically, the cost of living has doubled in the last year. A severe blow to the Fernandez administration, which risks being unseated in October Presidential Elections. The Minister of Economy, Sergio Massa, had set at 60% the limit to which, in his opinion, inflation in Argentina would reach this year. And monthly price growth should have remained below 3%. Independent analysts, on the other hand, estimate a rate close to 100% by the end of the year.

A few weeks ago, Argentina obtained yet another tranche of 6 billion dollars from the International Monetary Fund (IMF).

Since March, aid from the institution has reached 23.5 billion. At the end of assistance program 30 months, will be equal to 44 billion. Never has any outlay been so high for the institution to a single country. And this is the thirteenth agreement signed with Buenos Aires since the return to democracy in 1983.

Argentina’s old vices remain standing

The results continue to not be seen, also because Argentina always finds a way not to give up the old vices. The central bank raised its key interest rates to 75% in December. In real terms, however, they remain deeply negative at around 20% in light of the latest inflation data. There monetary mass it just gallops. In the last year, it has grown by almost 60%.

The annual average in the five-year period exceeds 50%. Basically, the government needs to borrow to finance public spending and the central bank needs to print money to cover these budget “holes”.

A perversion that decimated the value of the pesos. The official exchange rate has depreciated by 42.5% over the past year. They serve 181 pesos for 1 US dollar. To the black marketHowever, the famous “dolar blue” is worth 361 pesos. In practice, the real value of the exchange rate is halved compared to that officially fixed by the central bank. Do you think that before the devaluation at the end of 2015, the exchange rate was still around 9.50. And at the turn of the millennium, before the dramatic default in early 2002, parity was 1:1.

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Worrying as it may be, there will probably be no positive news for the Argentine economy at least until the next elections. The Peronists, who have already lost their majority in Congress after decades, are unlikely to want to cut the deficit and raise interest rates above inflation to try to stabilize exchange rates and prices. Nor will they want to devalue the peso, as requested by the IMF and a fundamental operation to eliminate the confused exchange system and allow the economy to tend towards equilibrium with foreign countries. Central bank independence from political power is clearly low. The foreign exchange reserves they have not yet fallen to alarming levels – enough for almost 5 months of imports – thanks to IMF aid. But the situation is tragic and there is no sign of improvement on the horizon.

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The article is in Italian

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