TIT DEFINITION madness, Albert Einstein would have said, is to do the same thing over and over and expect a different result. Argentina’s Peronist government seems to find this simple rule as baffling as others find the general theory of relativity. On October 19, Roberto Feletti, the new internal trade secretary, issued a decree fixing until January the prices of 1,432 products, ranging from cheese spread to shaving cream. Its 881-page appendix indicates in the last fraction of a peso the maximum price of each product in each of the country’s 24 provinces. The reason? Prices rose an unexpectedly 3.5% level in September, or 53% year-over-year. And the October figure is expected to be released just three days before a crucial mid-term legislative election.

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In September, the ruling coalition was shocked to lose a primaries that serve as a dry run for the elections. The lesson learned by Cristina Fernández de Kirchner, the powerful vice president who held the most senior position from 2007 to 2015, is that the government had intervened too little in the economy. Mr Feletti’s checks will allow the ruling coalition to blame the price hikes on the grabbing companies.

“There is no economic logic, everything is communicational and political”, explains Federico Sturzenegger, former president of the central bank. It is the government itself that is the reason Argentina has the highest inflation of any of the world’s largest economies (except Venezuela, whose government is even more addicted to controls) . He had already capped utility tariffs and interest rates after taking office in December 2019. But his failure to reach an agreement with the IMF denies him international sources of credit. It therefore finances the budget deficit for this year of around 4% of the GDP mainly by printing money. “This money drives out other goods”, pushes up inflation, underlines Mr. Sturzenegger.

The country has been here before. Peronism’s penchant for protectionism, subsidies and the declining exchange rate means Argentina suffers from chronic budget deficits and hard currency shortages. At the end of 2013, as the commodities boom faded and dollars ran out of dollars again, Ms. Fernández’s government tightened its previous controls on prices, currencies and capital movements. Recession and rising inflation duly followed, and the Peronists lost the 2015 presidential election to center-right Mauricio Macri.

So why repeat a failed recipe? Reading the Kirchneristas is that they only lost narrowly in 2015. They represent interests that enjoy protection (the established industrialists), or are appeased by subsidies (the poor). The controls provide a kind of stability, preventing hyperinflation.

This artificial stability comes at a cost: the economy has hardly grown since 2008. Wages have risen less than inflation in eight of the last ten years. Argentines were getting poorer and poorer even before the pandemic. Those who can afford to send their money abroad; in the recent Pandora article leak, Argentina ranks third in terms of the number of beneficiaries of offshore companies, behind Russia and Britain.

Can the government keep control until the next presidential election in 2023? As inflation rose slightly, the (tolerated) black market price of the dollar widened to double the official rate. Alberto Fernández, the proxy president installed by Ms Fernández, has been diminished by his mismanagement of the pandemic (he lost his credibility after breaking his own draconian lockdown to throw a birthday party for his partner). Losing next month’s election would be another blow.

Luis Secco, an economist, notes that past hyperinflationary episodes occurred when the government was weak after losing a midterm election. But it may still be possible to get confused, especially if the government comes to an agreement with the IMF. Even if this is not the case, and that it fully finances the projected deficit of 4% of the GDP by printing money, inflation doesn’t need to go much higher than this year.

The big question is whether Argentines are finally tired of the Kirchneristas’ failed policy. Mr Macri lifted controls, boosting short-term growth, but he has been too slow to reform the state, causing a peso rush and a delayed deficit reduction. “The people cannot stand more austerity,” Máximo Kirchner, the vice-president’s political son, said this month. Its policies offer slower but inexorable impoverishment without any hope of growth. Perhaps the Argentines will realize this eventually.

This article appeared in the Americas section of the print edition under the title “No-growth economics”


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