Economy Minister Axel Kicillof insists the government will work to make sure prices do not increase.
Pro-K, anti-government experts largely agree transfer to prices seems inevitable
As the government got ready to unveil the details of its plan to lift the prohibition of dollar sales for savings, economists are warning that the inevitable price hike following last week’s steep devaluation forces analysts to adjust inflation projections for this year to no less than 30 percent.
“This kind of devaluation, in an inflationary context, only leads to more inflation,” former Central Bank Chief Economist Francisco Gismondi told the Herald.
“It is very likely that this 20-percent devaluation gets transferred quicky to prices, probably in six months’ time, so we need to be thinking of a floor of 30-percent inflation” for 2014, he added.
A pro-government economist speaking with the Herald who asked to be quoted off the record largely agreed with the scenario.
“My perception is that the transfer (of the devaluation) to prices will be very strong, considering imported inputs and expectations,” the source said.
As Cabinet Chief Jorge Capitanich is scheduled to reveal the fine print today of the government’s plan, announced on Friday, Economy Minister Axel Kicillof was sure to point out that Argentina’s economy grew 5.1 percent last year despite the fact that supposed specialists continually insisted the economy was doing badly.
Now though, the government will have to toe a thin line when it relaxes the currency controls that were imposed in 2011, the Kirchnerite economist told the Herald.
“If the AFIP tax bureau gets too restrictive (on foreign-exchange purchases), controls will be back at square one,” he said.
There is a risk of opening up the dollar tap too quickly though.
“Too much flexibilization would lead to a run on the banks that would add to the current sources of demand, like tourists and the energy sector,” the economist added.
The pro-government economist explained to the Herald that “the central problem is that there will be no short-term positive effect on the trade balance.”
In that sense, doubts remained on whether this sudden devaluation would affect “Precios Cuidados,” the ongoing price-watch programme that was announced in December.
Miguel Calvete, head of the Federation of Chinese Supermarkets and Associations (FSAC), yesterday denounced that after the recent rise of the “official” dollar several retailers and providers have already marked up their prices “between 5 and 10 percent.”
“A 20 percent increase on the value of the dollar may end up having between 0.7 and 2 percent increase in the final price of the product — and that can be reflected on the shelves,” Calvete said.
The business leader said these conducts are “irresponsible” and called the government to control and punish such manoeuvres.
“A scheme with clear rules must be set for both importers and industry leaders, especially for suppliers that have almost all their products tied to the dollar,” he told Radio Mitre.
Several suppliers are selling their products at an average rate between the official dollar and the “blue” or black-market dollar, Calvete added.
Meanwhile, wholesalers are restricting their offer, thus “complicating” the success of the price-watch programme. “In the case of Chinese-owned supermarkets, we’re dealing with a limited amount of products — so if distributors and wholesalers do their part of supplying (these products), we’ll be able to comply with the programme,” the FSAC representative concluded.
In an interview with daily Página/12, Economy Minister Axel Kicillof said the national government “would be really strict in maintaining” the values set through the “Precios Cuidados” programme.
“Most of the prices in Argentina do not depend on the value of the dollar,” Kicillof assured. “Prices will not be modified.”
“Prices are not tied to the dollar, although some (businessmen) may try to take advantage of the situation and use it as an excuse to mark up prices,” the Kirchnerite official explained. “But in those cases, the state will put things in their place.”
The Commercial Loyalty and the Consumer Defence laws are two regulations the government may use to make firms comply with the accord.
Last night, Kicillof went to the pro-government programme 6-7-8, where he ranted against the media for their “self-fulfilling prophecies” regarding the devaluation of the peso.
“What are they saying now? That devaluation will transfer to prices and salaries. But as far as I know, prices and salaries in Argentina are expressed in pesos. There is a dollarized component, of course — but of around 30 percent,” Kicillof said.
35 again
One of the big surprises of the interview published yesterday was that Kicillof said the Argentine surcharge on credit card purchases made in dollars will not be lowered today from the current 35 percent to 20 percent, as he had announced on Friday.
“In the case of currency for tourism and for purchases with a credit card abroad, the 35 to 20 percent move will not be implemented this Monday,” Kicillof said.
There was no word of when, or if, the surcharge on credit card purchases may be eased.
“Internal tourism improved a lot in Argentina and those who wanted to travel were able to,” Kicillof said. “People with a high purchasing power were able to spend in dollars without limits using their credit card.”
The tax will still be lowered for cash purchases for savings, however, and all the other announced measures are still to take effect today.
Also yesterday, Renewal Front leader Sergio Massa said the measures announced by the President Cristina Fernández de Kirchner administration will affect mainly “pensioners, workers and the middle class.”
“We sense the government lacks a defined economic programme,” Massa said.
Radical Party (UCR) lawmaker Julio Cobos said inflation was the biggest problem and the government was not taking remedial action.
“If there are no economic goals for the next years, they won’t be able to control the dollar,” Cobos warned.
Herald staff with Télam, DyN, AP