José Lonardi stands in his tiny candy and beverage shop in downtown Buenos Aires. Customers, he says, have lost all reference points for the price of products in Argentina and so nothing surprises them anymore. CREDIT: Daniel Gutman / IPS

By Daniel Gutman
BUENOS AIRES, Nov 16 2023 (IPS)

People in Argentina have become accustomed to the fact that nothing costs the same today as it did the week before and they take price hikes in stride with resignation, says Mariano Cohen. “Almost nobody gets angry or complains anymore. They just don’t buy something if they can’t afford it,” he explains in his disposable goods store in Villa Crespo, one of Buenos Aires’ most commercial neighborhoods.

Mariano sells plastic cups, plates and bowls, cardboard packaging rolls and aluminum containers. He serves bars, restaurants and the public. He has a large sales room, about 80 square meters, and a mezzanine of the same size, which he uses as a warehouse and is a great asset for a merchant who sells non-perishable products.

The business owner tells IPS that he buys and stocks as much merchandise as he can, to anticipate price hikes.

“If I don’t have more, it’s because there’s no more coming in or because they don’t want to sell me large quantities. The other day a supplier suspended a very important delivery from one minute to the next and gave me back the money I had already paid him,” he comments, with the same gesture of resignation that, he says, his customers make when faced with the prices in his store.

The economy of this South American country, with a long history of imbalances and inflation, has entered a spiral of permanent price increases that has already squelched the capacity for amazement of its 46 million inhabitants.

In Argentina, the absurd has been normal for some time: here you can buy a pair of shoes in six installments without interest, with financing subsidized by the government or even by private banks, but to buy a house you must pay in cash, because mortgages are almost non-existent. Today, price rises are so common that people are surprised the few times that a price is the same from one week to the next.

In 2021, there was concern when inflation climbed to 50 percent per year, partly attributed to the impact of the COVID-19 pandemic, which forced an increase in currency issuance to meet social assistance needs. However, people soon became nostalgic for this figure: in 2022 the index climbed to 95 percent, the highest since 1991.

Even so, the economy of this nation – where more than 40 percent of the population is poor and practically no private sector employment has been created for the last 12 years – seems to be determined to prove that it can always get worse.

This year inflation climbed again, to an accumulative 103 percent in the first nine months alone, reaching 138 percent in the interannual index (from September 2022 to September 2023), according to official data. Projections indicate that 2023 will end with an increase in consumer prices of around 150 percent.

An employee uses a machine to count banknotes in a store in Patagonia in southern Argentina. The constant increase in prices has meant that many products must be paid for with dozens of bills of the devalued Argentine peso and has forced stores to buy counting machines to save time. CREDIT: Daniel Gutman / IPS

Emerging and drowning again

“I feel that the day I get paid my salary is the best day of the month, but also the worst,” Ariel Machado tells IPS, laughing bitterly.

“I’m happy when I get paid, but when I set aside the money for fixed expenses and calculate how much I’ll have left, I feel like I’m drowning again,” says Ariel, who has a son and is separated from his wife, and who is employed by a well-known public relations agency in Buenos Aires and also sells selected wines over the Internet to supplement his income.

A typical member of the strong middle class of Buenos Aires, used to going on vacation to the beaches of Brazil and dining in restaurants a couple of times a week, Ariel says that those things are now just memories and that today he sometimes feels like he’s spinning “on a wheel of unhappiness, because of the amount of things I want to do and can’t.”

He tries to forget about it, but doesn’t succeed. “Worrying about money consumes a lot of energy. Three years ago I couldn’t save either, but this didn’t happen to me. Now there are days when even having a cup of coffee outside the office seems like a wasteful luxury,” he says.

By his own admission, Ariel is not even remotely among the most vulnerable segments of the population, who spend practically all their income on food, prices of which have been rising more than average.

Latin America’s third largest economy is immersed in a process of stagnation and deterioration that began in 2012 and caused the governing parties to lose the last two presidential elections, in 2015 and 2019.

On Sunday Nov. 19, the next president will be chosen in a runoff election in which the ruling party’s centrist candidate Sergio Massa will compete against the far-right opposition candidate Javier Milei.

Only the extravagant proposals of Milei, who calls for the free carrying of arms and the creation of a market for the sale of organs, in addition to immediate dollarization and the elimination of the local peso from the Central Bank, have made Massa, who since 2022 is the Minister of Economy, competitive.

Elections always generate even more instability in the economy and situations that are difficult for visitors to understand.

Those who can afford to do so stock up on items in anticipation of what will happen to prices and consumption after the elections.

Thus, September, the month prior to the first round of elections, showed a strong increase in consumption in supermarkets (eight percent above the previous month, according to private sector data), comparable only to March 2020, when the pandemic confinement began.

In any case, the impact of inflation on the poorest is especially visible in the outskirts of the capital. Greater Buenos Aires is home to 15.5 million people, or one third of Argentina’s population, where more and more people sleep on the streets or wander around in search of something to eat.

The poor suffer from a decline that is measured not only in terms of income but also with respect to access to basic services and to environmental conditions.

A paper published in October by the Argentine Catholic University’s (UCA) well-respected Observatory of Social Debt found that since 2018 a process of reduction of the inequality gap began in Greater Buenos Aires, but due to the worsening living conditions of the middle class rather than to improvements in households in the most impoverished neighborhoods.

Members of these vulnerable sectors of Buenos Aires told IPS that the escalation of inflation is more a problem of the middle class people living in the city, who have to lower their standard of living and who are becoming poorer, while in their case “we were and are so bad off that a jump in inflation of 100 to 150 percent does not change anything for us.”

In addition, part of the poorest population of Buenos Aires and its outlying areas receives social assistance from the central or city governments, or from non-governmental organizations.

A supermarket in Buenos Aires displays a sign from the “Fair Prices” program, which consists of an agreement between the Argentine government and companies to curb the prices of basic products. People frequently complain that the products are often not available, due to the reluctance of the companies to comply with this commitment. CREDIT: Daniel Gutman / IPS

No reference point

José Lonardi owns a tiny shop selling candy, beverages and cigarettes on Paraguay Street, a few blocks from the Obelisk, an icon of downtown Buenos Aires. The prices of the merchandise, he tells IPS, increase almost every week, sometimes by three to five percent, and sometimes by 20 to 30 percent.

“Two or three years ago, customers still complained when prices went up, because they had some point of reference. Today, inflation has picked up so fast that nobody knows how much things are worth and nobody says anything anymore,” he remarks.

Against this backdrop, contradictory advice is rampant. The value of pesos is melting like ice cream under the sun and people want to get rid of them. On afternoon TV programs, a steady parade of economists advise people to buy large quantities of toilet paper to beat inflation.

Many people, however, do not pay attention to them: in different neighborhoods of Buenos Aires restaurants are always full, even on weekdays. “In the Argentine economy nobody knows what might happen next week. So pesos are burning holes in people’s pockets, and people, as long as they have them, spend them,” says José.

By Fernando J. Cardim de Carvalho
RIO DE JANEIRO, Dec 30 2015 (IPS)

As 2015 approaches its end, Brazilians live a period of extraordinary uncertainty. The recession seems to get worse by the day. Inflation is high and shows unexpected resistance to tight monetary policies applied by the Central Bank. The sluggish international economy has largely neutralized incentive and the strong devaluation of the domestic currency could represent a reality to exporters and to producers who compete with now more expensive imports. After an initial resistance, employment levels began to fall.

Fernando J. Cardim de Carvalho

Any subset of that list of events would be enough to generate widespread instability. All of them put together created a hitherto unheard of situation of political and economic crisis of which one has to make extraordinary efforts to see any way out.

Impeachment procedures against the president did not come out of the blue. The revelation of the Petrobras scandal has brewed rumors and suspicions, if not against the president herself, certainly against many of those who surround, or have surrounded, her (she is a former minister of energy in Lula’s government and a former chairman of the administration council of Petrobras.) So far, however, no accusations or evidence emerged against Rousseff. In fact, she does not even seem to be a major target of investigators, who seem to be zeroing in on Lula (and his immediate family.) The piece of accusation justifying the opening of impeachment proceedings relies on the use of accounting artifices to violate the constraints on public expenditure imposed by the Fiscal Responsibility Act, which a majority of opinion makers seem to consider too weak a case to sustain an impeachment. What makes the whole process more menacing is in fact her acute political fragility. Rousseff is universally seen as Lula’s creation, but never really relinquished his power over the party and the coalition it led.

Soon after Rousseff was reelected in November 2014, she announced a radical change of orientation in her administration’s economic policies. Austerity policies, cutting expenditures and raising taxes, seemed to be unavoidable in the face of the increased federal expenditure made to ensure her victory in the presidential elections.

The incumbent president repeatedly stated during the campaign that she rejected those policies, only to announce their implementation a few days after the result of the popular vote became known. Despite the apparent support of Lula, the change in orientation was badly received by the official Workers Party (PT), which grudgingly announced support for her, but conditioning it to a change in macroeconomic policies.

The party seemed to ignore the fact that during 2014, the increase in fiscal deficits failed to have any expansionary impact on the economy, which did not grow at all. The perception that the president had no political support of her own, however, stimulated her adversaries to aggressively advance proposals for her impeachment, based on whatever reason one could find, or the annulment of the election itself, or if nothing else worked, to force her to resign. With an aggressive opposition and unable to count on a supporting political base, the government was paralyzed for the whole year.

No relevant austerity measure has obtained Congress’ approval. Despite the effort of leftist parties to blame the pro-austerity Finance Minister Joaquim Levy for the contraction of the economy, it is impossible to ignore the fact that the failed attempts to get the proposed policies approved by Congress just made explicit the lack of political power that characterized Rousseff’s position. The impasse created by the inexistence of an effective government in the face of an aggressive opposition led decision-makers to postpone any but the most immediate decisions. Investment has fallen, workers have been fired in increasing numbers, consumption has been negatively impacted, etc.

The political crisis has transformed an expected recession into something that threatens to become a major depression, both in depth and duration. The situation is made more difficult by the difficulty to visualize any sustainable solution for the crises in the mediate horizon, let alone the coming months. If the impeachment process prospers, one could expect for sure increased political instability as a result, on the one hand, of attempts by PT and the social movements that are close to it to react somehow, and, on the other, by the fact that there is no organized opposition ready to take the place of the current administration. If the impeachment initiative is defeated, the problem remains that the president does not have any vision or power and it is overwhelmingly difficult to imagine how she could recover enough initiative to last the three remaining years of her term in office.

Paraphrasing the late historian Eric Hobsbawn, who observed that the Twentieth Century had been very short (beginning in 1914 and ending in 1991), 2015 may be a long year for Brazilians. The incompressible minimal duration of an impeachment process will take it to 2016, when the social situation may be more tense than it is now, with high inflation and increasing unemployment. If a national agreement of some sort, be it in terms of allowing Rousseff’s government to work or by removing it altogether, is not reached to avoid the worse, 2015 can last even longer. The country may dive into an unknown abyss of a combination of economic, political and social crises of which it is hard to see how, when and in what conditions it will recover.

(End)

Excerpt:

By Guillermo Medina
MADRID, Mar 4 2015 (IPS)

At last, on Tuesday Feb. 24, the Eurogroup (of eurozone finance ministers) approved the Greek government’s commitment to a programme of reforms in return for extending the country’s bailout deal.

The agreement marks the end of tense and protracted negotiations. It consists of a four-month extension for the second bailout programme worth 130 billion euros (over 145 billion dollars), in force since 2012 and which was due to expire on Feb. 28. The first bailout was for 110 billion euros, equivalent to 123 billion dollars.

Guillermo Medina

During this period, the European Central Bank (ECB) will provide Greece with liquidity and the terms of a new bailout will be hammered out.

The eleventh-hour agreement was no doubt motivated partly by fears that a “Grexit” – Greek withdrawal from the eurozone monetary union – would have triggered a financial earthquake with unforeseeable consequences. The result is a very European-style compromise that averts catastrophe and gains time while avoiding facing the underlying problems.

In exchange for an extension of financial support from Greece’s partners and creditors, Prime Minister Alexis Tsipras will have to submit all his government’s measures during this period to Eurogroup inspection.

But the deal promises Greece more than just restrictions. The country will have to pay its debts to the last euro, but if, as seems probable, deadlines for primary surplus targets are extended, the country will have greater ability to pay (France has just secured this for itself).

In the final document, Greece promised to adopt a tax reform that would make the system fairer and more progressive, as well as reinforce the fight against corruption and tax evasion and reduce administrative spending.“Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future”

If the government pursues these goals, together with the fight against contraband, efficiently and with determination (as indeed it should, because they are part of its programme and target its domestic enemies), the income will be helpful for the application of its social and economic programmes.

In view of the successive positions that Greece has had to relinquish in the course of the negotiations, it appears that the country has achieved the little that could be achieved.

The negotiations between Greece and its European partners mark a milestone in the political tussle in the European Union since the reunification of Germany in 1990, between moving towards a Europeanised Germany or a Germanised Europe.

Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future.

Germany has openly tried to impose its convictions and its hegemony on Europe. Greece was only the immediate battlefield. Brussels and Berlin have been divided from the outset about how to solve the Greek crisis, but Germany prevailed.

However, the masters of Europe do not have any interest in “destroying” Greece, and so cutting off their nose to spite their face. They are satisfied with a demonstration of the asymmetry of power between the two sides, and the public contemplation of assured failure for whoever defies the status quo and supports any policy that deviates from the one true official line.

The problem with a Germanised Europe is not the preponderant role that Germany would play, but that it would impose a “Made in Germany” model of Europe that conforms to its own interests. That is how it would differ from a Europeanised Germany.

The Greek crisis has highlighted the ever-widening contrast between the values and ideals that we consider to be central to the European project, such as solidarity, mutual aid and social justice, and the new values that set aside basic aims like full employment, social welfare and equal opportunities.

It is paradoxical that Europe, which is apparently absent from or baffled by threats from the opposite shore of the Mediterranean, should take a harsh, tough attitude with a small partner overwhelmed by debt. It is also paradoxical that structural reforms are demanded of Greece, without admitting Europe’s own urgent need to redesign the eurozone and reframe the policies that have led to the poor performance of its monetary union.

The Greek crisis and the difficulties in overcoming it have a great deal to do with a design of the euro that benefits financial interests, particularly Germany’s.

The project neglected the harmonisation of tax policies and created a European Central Bank that lacked the powers that permit the U.S. Federal Reserve and the Bank of England to issue money and buy state debt.

As is well known, the ECB has made loans to European banks at very low interest rates, and they in turn have made loans to states, including Greece, at much higher interest. Government debts thus mounted up, and in order to pay they were forced to cut public spending.

Why does Europe persist in following failed policies while refusing to follow those that have lifted the United States out of recession? The only explanation is stubborn attachment to an ideological vision of economic policy that is devoid of pragmatism.

How can insistence on the path of error be explained at such a time? There may well be a quota of incompetence, but the basic reason is, as Nobel prize-winners Joseph Stiglitz and Paul Krugman affirm, that the goal of the policies imposed by the “Troika” (European Commission, ECB and International Monetary Fund) is to protect the interests of financial capital. And this is because the powers of political institutions, the media and academia, are dominated by financial capital, with German financial capital at the core.

Financial interests are essentially capable of shaping the decisions of European governance institutions. In the United States this subservience is less clear-cut, allowing hefty penalties to be imposed on certain banks, as well as the development of other economic strategies.

This is because independent mechanisms of control and oversight exist, the Federal Reserve has well-defined goals (whereas the ECB has spent years fighting the insistent threat of inflation), and there is democratic administration with the political will to resist.

In conclusion: the issue is to clarify what sort of Europe the citizens of Europe want, and what institutional changes are needed to achieve it.

And even more importantly, having seen the consecration of German hegemony over the Old World, what sort of German leadership would be compatible with a united Europe based on solidarity? Is this even possible? (END/IPS COLUMNIST SERVICE)

Translated by Valerie Dee/Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

David Kamau on his farm in Nyeri County, Central Kenya. Although he now grows carrots for sale in addition to maize, he says his efforts are yet to pay off. Credit: Miriam Gathigah/IPS

By Miriam Gathigah
NAIROBI, Dec 17 2014 (IPS)

David Kamau is a small-scale maize farmer in Nyeri, Central Kenya, some 153 kms from the capital Nairobi. He recently diversified into carrot farming but is still not making a profit.

He says that inputs cost too much and if this trend continues he will sub-divide and sell his five hectares.

This is the story of many small-scale farmers in this East African nation, where agriculture accounts for about one-quarter of the Gross Domestic Product (GDP). But small-scale farmers – accounting for about 75 percent of total agricultural produce – barely break even.

“A 150 kg bag of carrot is now going for about 27 dollars, up from 22 dollars, but as prices go up, so does the cost of inputs,” says Kamau.“The growth of both urban and rural slums is an indication that more people are falling on hard times” – Dinah Mukami of the Bunge la Mwananchi pro-poor social movement

According to the Ministry of Agriculture, an estimated five million out of about eight million Kenyan households depend directly on agriculture for their livelihoods. Yet agriculture fails to provide an adequate return to farmers because their sector is significantly underfunded, explains Jason Braganza, an economic analyst based in Nairobi.

The percentage of the budget for the agricultural sector is 2.4 percent, down 0.6 percent from the 3 percent in the 2012/2013 budget and well below the threshold of the 2003 African Union Maputo Declaration on Agriculture and Food Security, which mandated that at least 10 percent the national budget should be allocated to agriculture.

The result, says Kamau, is that “farmers are slowly moving out of the farms and trying other economic ventures, Central Kenya used to be a breadbasket but farmlands are being replaced by residential and commercial complexes.”

Farming is not the only sector feeling an economic downslide. Small businesses in Kenya are faced with a lack of essential business support services, especially financial services. Two-thirds of Kenyans do not have access to basic financial services such as banking accounts.

“The growth of both urban and rural slums is an indication that more people are falling on hard times,” according to Dinah Mukami of the Bunge la Mwananchi [People’s Parliament] pro-poor social movement.

She says that the group is planning to hold the government responsible regarding the use of the information in the ‘Socio-Economic Atlas of Kenya’ which the government released last month. The report exposes significant disparities in poverty levels across the country.

“The Atlas is a powerful tool, but whether the government will use the information to change lives and improve living standards remains to be seen,” she says.

Felix Omondi, a resident of Kibera, a division of Nairobi considered the largest slum in Africa, and a member of the Unga Revolution, a local activist group, is one of those who believes that the Atlas is doing some good.

He told IPS that that a programme is under way to upgrade slums and said that this is “one of the ways that the government is using the Atlas to improve the lives of people in the slums.”

In the last three months, the government has been working with residents of the slums to establish income-generating projects and provide basic amenities such as toilets, lighting and drainage.

At least 3,000 youths in Kibera will benefit from these projects. Omondi, a beneficiary, says that he is running one of the posho (corn meal) mills set up by the government to generate income.

Kenya now officially a “middle-income country”

Meanwhile, in autumn the news came out that Kenya had seen its economy grow 25 percent after statistical revision and is now officially a “middle-income country”. A few months ago, a similar type of revision brought Nigeria’s economy to the top of African countries in terms of the size of the economy, surpassing South Africa for the first time.

A growing middle class population is an important driver of this growth, but what does that middle class look like? The recently revised Kenyan figures indicate that the Gross National Income (GNI) per capita is 1,160 dollars against the World Bank’s “middle income” threshold of 1,036 dollars.

The latest income-distribution indicators for Kenya (which date back to 2005) show the following:

• 45.9 percent of the population was at the national poverty line;
• The income share held by the top 10 percent was 38 percent.

This out-of-date, official information excludes the informal economy, observes Africa Arino, professor of strategic management at the IESE Business School in Spain.

“A taxi driver makes KES 15,000 a month (about 178 dollars or 132 euro), and pays KES 3,500 (close to 25 percent of his income) to rent a room where he lives with his wife and two children,” Arino explains.

“They don’t have a kitchen or a bathroom: these are facilities shared with others in the same building lot. His income is pretty much the average salary of a driver, according to the Kenya Economic Survey 2014. Is he middle class?”

According to Braganza, one of the main challenges facing Kenya is that while the country’s economic growth is real and sustainable, the structure of the economy has remained unchanged. Resources have not shifted into the most productive sectors of the economy which would increase overall productivity and an increase in remunerative employment.

Braganza says that for people to feel the trickledown effect of the economic growth, there must also be structural transformation. “There is a need for more investment in the more productive sectors, as well as investment in emerging sectors. This will contribute towards a reduction in unemployment and poverty.”

(Edited by Phil Harris)

By Fernando J. Cardim de Carvalho
RIO DE JANEIRO, Oct 30 2014 (IPS)

The tight race between incumbent President Dilma Rousseff of Brazil’s Workers’ Party and her opponent, Aecio Neves from the centre-right Brazilian Social Democracy Party (PSDB) party, ended on Sunday, Oct. 26 with the re-election of Rousseff.

As happens in cases of re-election, the new government is, for all purposes, inaugurated immediately, because there is no need to wait until the legal date of January 1 to begin forming the new government and making necessary decisions.

Fernando Cardim de Carvalho

Neither is there a honeymoon in a re-election: voters expect work to begin and some results to show right away.

There is no doubt that Rousseff faces a difficult period ahead. The economy has ground to a halt during 2014 and the perspectives for 2015 are not much better. During practically the whole of the first semester, inflation remained near or above the ceiling of 6.5 percent that was set by the government itself, and the perspectives for next year are not good either.

Balance of payments positions are not comfortable, marked by very high deficits in current transactions and dependence on capital inflows. Social inclusion programmes that were very successful in the recent past may be near exhaustion and will need an upgrade.

Finally, a huge deal was made during the electoral campaign of corruption cases in the administration and in state enterprises, notably Petrobrás, the Brazilian oil company, raising issues that will have to be dealt with by the incoming administration.“There is no doubt that Rousseff faces a difficult period ahead. The economy has ground to a halt during 2014 and the perspectives for 2015 are not much better”

This does not address, of course, another set of difficulties related to the formation of governments in the Brazilian political system, requiring coalitions to be formed with political parties that look like being for rent rather than available for political debates around principles or programmes.

Let us be clear: the situation is uncomfortable on many fronts but is far from catastrophic, no matter how dramatic opposition speeches have tried to suggest.

Things are far better than in Western Europe, for example, where a second recession is very likely to happen in the near future in economies already devastated by the irrational adherence to austerity policies imposed by some governments led by Germany. But the problems the new government will have to face cannot be underestimated either.

Focusing only on the economic challenges, Rousseff’s first task is to try to escape the curse the Brazilian economy has been facing since it achieved control of inflation twenty years ago.

The Real Plan, named after the new currency that was introduced in 1994, was based on the access to cheap imports obtained by liberalising foreign trade and an overvalued currency. To maintain overvaluation it was necessary to attract foreign capital inflows, which required high interest rates (higher than that paid in other countries). High interest rates were also necessary to control domestic demand so that no significant pressure would be applied on domestic prices.

However, exchange rate overvaluation and high interest rates reduced the competitiveness of local producers, particularly in the manufacturing sector, which are very sensitive to exchange rate behaviour.

As a result, the Brazilian economy has lived on a see-saw in these twenty years, alternating periods where devalued exchange rates have allowed some industrial expansion at the cost of accelerating inflation with periods of controlled inflation at the cost of industrial stagnation.

Fernando H. Cardoso was imprisoned by this dilemma, as was Lula da Silva. So was Rousseff in her first term, when she, to her credit, realised that the country had to escape the trap but was unsuccessful in finding the way to do so.

With the international economy in a weak condition, and which is forecast to last, Rousseff has to find a way to promote growth without fuelling higher inflation and increasing external vulnerability, that is, without raising the volume of imports when exports are stagnating.

Bringing the inflation rate down is also needed. Societies tend to have long memories (see how the Germans still react to the hyperinflation they experienced a century ago). A large number of Brazilians still remember how unbearable life was when inflation was in the two-digit figures a month.

We are not anywhere close to repeating that experience, but it has made Brazilians alert and sensitive to any signs that government may be lax in fighting inflation. Besides, 6.5 percent a year for more than three years in a row does add to significant loss of purchasing power for fixed incomes and for those wages and salaries that are not compensated by more generous increases.

Even the greatest triumph of the Workers’ Party administration – social programmes – may be near exhaustion.

The Food and Agriculture Organization of the United Nations (FAO) has announced that hunger is no longer an issue for Brazil. Of course, this is great news but it also means that social policies will now have to be designed with higher aims, to improve the quality of life for the populations that were upgraded by past programmes.

Jobs, education and health are much more difficult to address than extreme poverty, the reduction of which could be dealt with cash transfers. Even if no other important problem was on the agenda, this is a tall order for any political leader, but it is even more so for a re-elected president.

Brazilian citizens are impatient to see how Rousseff will meet the challenge. (END/IPS COLUMNIST SERVICE)

(Edited by Phil Harris)

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

By Fernando J. Cardim de Carvalho
RIO DE JANEIRO, May 20 2014 (IPS)

Brazil’s real gross domestic product (GDP) in 2013 grew by 2.3 percent, following rates of 2.7 percent and 1 percent in 2012 and 2011 respectively. Perspectives for 2014 on this front are not optimistic.

Meanwhile, annual inflation has remained stubbornly high, at around 6 percent, and the balance of payments position has been less than comfortable, with increasing deficits being recorded in its current account (exports of goods and services less imports).

The silver lining comes in the labour market, where not only practically full employment has been maintained, but the quality of jobs seems to be holding up, with workers shifting from the informal to the formal markets, where they qualify for benefits such as unemployment compensation and pensions.

Fernando Cardim de Carvalho

Only a few years ago, together with its BRICS partners (Russia, India, China and South Africa), the Brazilian economy was hailed as the new frontier of growth in the international arena. Today, gloomy projections are routinely issued by international institutions and domestic expectations seem to remain subdued. What could possibly have happened to change the picture so dramatically in such a short time?

The roots of the present economic situation seem to be a complex combination of international difficulties, not-so-competent policy-making and random misfortunes. In addition, recent political evolution has contributed to complicate matters even more.

Taking each factor at a time, the most visible difference with the performance of the Brazilian economy during current president Dilma Rousseff’s first term of office relates to the international environment. During President Lula Da Silva’s second term (2007-2011), the Brazilian economy benefited from tail winds represented mostly by strong Chinese demand for raw materials and agricultural goods, which not only helped the country to maintain a comfortable position in its balance of payments but also pushed its domestic economy strongly upwards.

This era seems to be over, given the publicly expressed concerns of the current Chinese government to cool and reform its own economy. The cooling of exports growth has helped to highlight one “structural” problem of the Brazilian economy, particularly strong after high inflation was defeated in 1994.

"The inability to define strategies to insert the Brazilian economy in a world economy going through deep changes has been a permanent feature of post-democratisation governments..."
Since that time, with short intervals in which the trend was temporarily broken, an overvalued domestic currency has been perhaps the most powerful tool to keep inflation under control. The possibility of importing goods at prices made low by a strong domestic currency not only provided domestic markets with cheap goods but also scared local producers into avoiding raising their prices and losing their markets to imports, a force particularly strong in the manufacturing sector.

This means that since the Real Plan in 1994, Brazil has been captured by a well-known dilemma: inflation can be kept low by overvaluing the domestic currency or manufacturing growth can be sped up by devaluing the currency, but one does not know how to achieve both. As a result, the Brazilian economy has been plagued by periods of intense “deindustrialisation” (when the currency is overvalued) or by inflationary pressures (when the currency is devalued).

While the Chinese economy was growing fast enough to carry raw materials exporters like Brazil, overall growth could be kept by substituting growth of exports for growth of manufacturing. But the recent deceleration of Chinese growth has made the dilemma faced by the Brazilian economy explicit.

The strong dependence of the international economy has been a major feature of the last twenty years and the weakening of international trade has made the limitations that define current policy-making more dramatic than ever. Unable to change the terms of the trade-off opposing a higher inflation rate (by allowing steeper currency devaluations) to higher growth rates, particularly of the manufacturing sector (by allowing the real to get stronger), Rousseff’s government has appealed to ad hoc policies that not only have not had the expected effect but, on the contrary, have created new problems.

As an example, unable to implement a coherent exchange rate policy to stimulate domestic manufacture, the government has conceded targeted fiscal relief to selected sectors. This strategy, if one can call it that, is of very limited efficiency. Benefits are temporary, generally given to help sectors to go through difficult periods. They do not signal market priorities, they just help some firms to get by. They cause state revenues to fall but do not stimulate investments or expansion of production, let alone technical progress or increase of productivity. Businessmen learn that it may be more profitable to lobby for favours than to invest and increase productivity. The fall in revenues leads to increased political pressure from believers in “austerity”, often forcing the government to cut other expenditures, which could be more effective but would require a longer period to mature. Necessary public investments are always the adjustment variable.

The inability to define strategies to insert the Brazilian economy in a world economy going through deep changes has been a permanent feature of post-democratisation governments (that is, since the mid-1980s) and it may be partly due to the realities created by the way the political system, and particularly the party system, was reconstructed after the military went back to the barracks.

Finally, one has also to acknowledge that bad luck has also had a hand. Bad weather, in the form of a particularly nasty drought, has affected the production of food and the generation of electric power, in a country where hydropower is by far the most important source of electricity. This has not only kept inflation pressures up but has also clouded the future, making firms even warier of investing.

In sum, it is not a comfortable time for the Brazilian economy. That important elections are also coming up in October this year does not help because the political debate tends to polarise, so that nobody expects important decisions to be made this year. This means that things should not improve significantly before 2015 at the earliest. (END/COPYRIGHT IPS)

Excerpt:

Supermarkets and other stores in Argentina have joined the Precios Cuidados price watch programme. Credit: Fabiana Frayssinet/IPS

By Fabiana Frayssinet
BUENOS AIRES, Feb 20 2014 (IPS)

Argentine consumers have responded to calls on social networks to mobilise against price hikes that threaten the country’s major advances towards poverty reduction and greater social equality.

A consumer boycott has had encouraging results, according to some consumer associations and government spokespersons.

The results were not quantifiable, but the campaign not to make purchases for 24 hours on Feb. 7 in supermarkets, appliance stores and gas stations was supported by 280,000 people on internet and visibly emptied many establishments.

“I started to go to different places to check prices. There are enormous differences,” psychologist Ester Vallez told IPS. She said she paid 30 percent more for a key for a lock from one week to the next, something that “obviously affects other products, too.”

“The government must control prices and we should all seek a strategy to exert pressure together,” Javier Sequeira, a maintenance worker who lives in La Matanza, in the west of Greater Buenos Aires, told IPS.

Sequeira’s wages are no longer enough to support his family. He is thinking of joining together with neighbours to buy food in bulk more cheaply at the Central Market.

“If we stop buying some products because they are too expensive, the factories will soon feel the difference. Many people use the dollar as an excuse to take unfair advantage,” said this father of two “with another on the way,” whose annual wage increase has evaporated because of inflation.

The consumer boycott is one of several initiatives called for in the media, including comparing prices, denouncing price increases and checking that products on the Precios Cuidados price watch list are available in stores.

The price watch list is the result of an agreement between the government of President Cristina Fernández and chains of suppliers and traders, to offer food drinks, cosmetics, cleaning, educational and construction products at accessible prices.

Mobilising against speculative prices emerged after the devaluation of the Argentine currency, the peso, which in January alone was devalued by more than 34 percent against the dollar, its largest fall since 2002, triggering indiscriminate price hikes.

In 2013, the official value of the peso fell by 25 percent against the dollar and the parallel peso by 47 percent, according to consulting firms.

“It’s time for all sectors to take their share of responsibility for things to keep working,” said President Fernández, criticising influential economic interests she blames for speculative attacks and capital flight.

Ernesto Mattos, an economist at the Centro de Investigación y Gestión de la Economía Solidaria (Economic Solidarity Research and Management Centre), told IPS that devaluation of the peso is an “excuse” to increase prices, speculate and reduce real salaries.

He said that between June and December 2013 companies selling food “had already increased prices by 200 percent,” even for many products that had no imported ingredients.

According to the National Institute of Statistics and Census, inflation in 2013 was 10.9 percent, whereas private consulting firms put it at 28.3 percent.

“At stake is not only speculation and workers’ wages, but the national project and the kind of country we want,” said Mattos.

The choice is between a country at the mercy of the big transnational corporations, or one that is capable of supplying its own basic needs and “joining forces” with the rest of the region “to make progress on social inclusion and reducing inequality,” he said.

Mattos backs popular participation in price watching in supermarkets, because that is where the “consumption pattern of Argentines in the big cities” is set, as well as the creation of “complaints mechanisms that allow sanctions on companies not only in the sales phase but also in production.”

Vallez said the government should “put more people on the street to control prices, and we as citizens should do our part, by not taking things lying down but reporting and not buying products that are overpriced.”

The government has responded with a battery of measures to counteract the results of devaluation and social discontent over its effects on prices.

As well as the Precios Cuidados price watch programme it has instituted new social programmes like Progresar (Progress), which provides a monthly allowance for unemployed or precariously employed young people aged 18 to 24 to start or complete their studies.

According to the Economic Commission for Latin America and the Caribbean (ECLAC), Argentina has the lowest poverty rate in the region (4.3 percent) and the second lowest extreme poverty rate (1.7 percent), after Uruguay.

In December, ECLAC ranked Argentina as one of the countries in the region that most decreased inequality during the period 2008-2012.

But the loss of value of salaries and purchasing power could reverse those achievements.

“The main source of the reduction of inequality over the past decade was the increase in the component of non-labour income (like subsidies and other assistance programmes) in the poorest households, but not improvement in work-related income in the same households,” said Agustín Salvia, the head of the Programa Cambio Estructural (Structural Change Programme) at the “Gino Germani” Research Institute of the University of Buenos Aires.

The inflationary spiral will tend to increase poverty, as well as inequality, he told IPS.

This is “precisely because of the impoverishment of wage-earners and non-wage-earners who are least protected by labour regulations,” said Salvia, a researcher for the National Scientific and Technical Research Council (CONICET).

In spite of government moves to neutralise the impact, it will not be able to “prevent a negative effect on workers in informal sectors” and also on pensioners, he said.

“The government must take strong measures to prevent inflation from creating a wider distribution of incomes, by continuing and deepening the existing policies for these social sectors,” Jimena Valdez, an economist and political scientist, told IPS.

In her view, “this entire situation would be exacerbated if there is an inflationary spiral, which is why it is in the primary interests of the government that this should not happen.”

To prevent it, Valdez said, the government could call for a dialogue with the business community and trade unions to discuss labour policies and wage increases. It should also increase the payments made by the social programmes in line with inflation.

Salvia said it is “very important to raise awareness and mobilise the public to put pressure on price setters so that there are no excesses.”

However, he pointed out, price movements “will be determined, fundamentally, by factors like the money supply, the level of demand (which is dropping), devaluation and inflationary expectations.”

The transition team of Iran’s President-elect Hassan Rouhani was busy last week lowering expectations for a quick economic recovery, saying that things are far worse than they had thought.

At the same time, the outgoing economy minister was briefing Iran’s Supreme Leader Ali Khamenei with a rosy picture.

Politics aside, it is hard to exaggerate the difficulty Rouhani faces in turning Iran’s economy around, especially without some relief from the international sanctions.

The numbers

The Mahmoud Ahmadinejad administration stopped publishing national income data in 2008 as part of the annual balance sheet of the Central Bank of Iran (CBI), placing in doubt the most important indicator – the rate of economic growth. 

Its reporting on inflation and unemployment has been more regular but lacked credibility because the reports were often cryptic and framed in the most positive light.

Last week, the CBI announced a rate of inflation of 35.9 percent for the Iranian month that ended on Jun. 21, averaging the increase in the consumer price index over two 12-month periods.

In reality, the index had increased by 50 percent during the last 12 months.

Government reports have shown unemployment to be rather steady in the 11-12 percent range. This provided an image of a stable jobs situation while the government’s own survey data indicated rising unemployment.

Iran’s last two censuses of 2006 and 2011 show a substantial increase in the unemployment rate of prime-age (20-54) workers from 11.5 to 15.4 percent.  For obvious reasons, these figures were not part of the economy minister’s report to the Supreme Leader.

Challenges and opportunities 

Perhaps the biggest surprise for Rouhani’s team came from the government budget, which they will inherit in two weeks. Rouhani’s senior advisor and head of his transition team, Akbar Torkan, said that he was not able to find reliable sources of revenue for 38 percent of government expenditures.

This presents the incoming government with its most immediate challenge – how to control inflation with public finances in such a dire state.

While he inherits an economy in deep crisis, there are a few things that Rouhani can be thankful for from his predecessor.

The first is Iran’s subsidy reform.  Three years ago, Iran was the least efficient user of energy because it had the lowest energy prices in the world. Roughly four million barrels of oil and gas equivalent per day (twice what it exported) were distributed to domestic consumers with huge subsidies, mostly benefiting the rich.

In January 2011, President Ahmadinejad embarked on a bold reform that sharply reduced energy subsidies and distributed the savings as equal cash transfers.

Despite the fact that prices have been frozen since 2011, the programme has curbed energy consumption and saved Iranians from queuing for gasoline despite international sanctions that prohibit such imports.

More importantly, the cash transfers, which cover 97 percent of the population, have been an important supplement to the country’s leaky safety net, softening the blow from the sanctions to the poor.

Rouhani can do well to remove the programme’s deficit and better target its transfers, but its bitter pill has been already swallowed.

Another painful adjustment came last September when the value of Iran’s currency, the rial, collapsed following the tightening of sanctions against Iranian oil exports. Just two weeks ago, the rial was officially devalued by more than 100 percent, making it easy for Rouhani to start his tenure with a more realistic exchange rate.

Before devaluation, cheap foreign currencies hurt Iranian production, which caused Iran’s dismal job growth.

Iranian producers are now in a better position to compete, but their limited access to the global economy, caused by sanctions, is a huge obstacle.

Rouhani’s promise to reduce sanctions will therefore be essential for Iran’s economic revival.

Relief for insolvent banks

Last year, the Ahmadinejad government quietly reversed itself on interest rates, letting banks charge rates above the earlier strict limits set by his own administration of 12-14 percent.

The low interest rates on deposits compared to inflation is the main reason why depositors have flocked to foreign currencies, gold and real estate to protect their savings.

As deposit rates increase, Iran’s liquidity-starved banks will attract more money and can begin to lend to liquidity-starved businesses.

Rouhani has promised a government of “experience and hope”, one that has “the keys to unlock closed doors”. There is reason to expect improvements in Iran’s economy during his first 100 days as president, but beyond that all bets are off.

Rouhani’s moderate posture has already paid off in terms of lower expectations of inflation, which has stabilised the foreign exchange markets and is gradually returning private savings to the banks, thus alleviating the liquidity crisis that has immobilised Iran’s businesses.

Unlocking hope

Rouhani’s economic team, to be announced in the next week or two, is expected to include experienced economists, which will further boost confidence among Iran’s economic actors.

But to restore hope, Rouhani needs to do more; he must create jobs.

Jobs can only come if Iran’s producers can export or invest in the production of goods that substitute for imports. However, their ability to do so is seriously hampered, if not made impossible, by international sanctions that have closed the gates to the global economy for Iranian producers.

The keys to these locks are, unfortunately, not in Rouhani’s hands.

They are with Western leaders and the Supreme Leader, who will decide if and when the nuclear agreement is resolved and sanctions can be removed.

Rouhani has a short window of less than two years to prove to the Iranian people that Iran’s moderates, who are willing to engage with the outside world, can run a better ship than the radical isolationists.  He has a historic opportunity to deliver a lesson that is not just important for Iran but for the entire Middle East.

Pushing for stricter sanctions against Iran, as some in the West are doing, risks harming this historic opportunity.

*Djavad Salehi-Isfahani is a Professor of Economics at Virginia Tech and Non-resident Senior Fellow at the Brookings Institution. Find more of his IPS work here.

Argentina has better prospects in 2013 after modest growth in 2012, thanks to an excellent grain harvest and the recovery of Brazil, its main market.

But high inflation remains an unsolved challenge.

Since the government took control of the National Statistics and Census Institute (INDEC) in 2007, its inflation figures have been called into question, locally and internationally. INDEC reported inflation last year as 10.8 percent, but estimates from the private sector and the parliamentary opposition put it at 25.6 percent.

“There was a sharp economic slowdown in 2012, partly because of the international crisis and partly because of internal imbalances,” economist Luciana Díaz, director of the fiscal policy programme at the Centre for the Implementation of Public Policies Promoting Equity and Growth (CIPPEC), an NGO, told IPS.

CIPPEC carries out constant monitoring of the public policies of the centre-left government of President Cristina Fernández.

According to INDEC’s latest figures, GDP grew 1.8 percent in the first three quarters of 2012, a poor result compared to GDP growth of 8.9 percent for the whole of 2011.

“The fiscal situation is being patched up with band-aids instead of developing comprehensive solutions. This affects monetary policy, increases inflation, blocks imports and creates expectations of a devaluation, which has repercussions on the level of economic activity,” Díaz said.

This expectation is reflected at present in a widening gap between the official value of the dollar (not available for savings) at 4.99 pesos, and the black market dollar (or “blue rate” as it is termed locally), which in the first few days of February was valued at between 7.60 and 8.00 pesos.

Díaz said this scenario is a disincentive to private investment. The government is trying to compensate with greater public investment, “but then the vicious circle is intensified,” she said.

In Díaz’s view, if adjustments had been made two years ago to limit public spending and inflation, growth would have been lower in 2010 and 2011, but higher in 2012. “We would have avoided these fluctuations that create uncertainty,” she said.

The government is forecasting a recovery in 2013, with GDP growth of 4.4 percent, according to this year’s budget. Payments due on external debt will also be lower this year than in 2012.

Private analysts concur with the forecast of higher economic activity, which is attributed mainly to recovery in Brazil, which had 1.2 percent GDP growth in 2012 and this year is predicted to have four percent.

Data on Brazil are provided by the Preliminary Overview of the Economies of Latin America and the Caribbean 2012, released in December by the Economic Commission for Latin American and the Caribbean (ECLAC).

The ECLAC overview reports growth of 2.2 percent of GDP for 2012 in the Argentine economy, and 3.9 percent in 2013, because of Brazil’s greater dynamism and a bumper grain harvest, a key element in Argentina’s economy.

Automobile production and sales in 2012 compared with projections for 2013 show the extent to which Argentina depends on Brazil’s prospects. Eighty-two percent of Argentine car exports are sold to Brazil.

According to the Asociación de Fábricas de Automotores (ADEFA), the industry association, in 2012 production fell by 7.8 percent compared to 2011, while exports fell by 18.4 percent.

If Brazil experiences a recovery, as it already has in the last quarter of 2012, production volumes of Argentine cars will increase, as well as sales, ADEFA said.

The grain harvest this year is forecast to be larger than last season’s. “It may even be one of the best harvests we have ever had,” Gustavo López, an analyst with Agritrend, a consultancy, told IPS.

López said the sum of the expected harvests of soybean and maize – the main export crops – together with the completed harvests of wheat, barley, sorghum and sunflower, will reach a total of between 105 and 110 million tonnes.

“The best season so far was in 2010/2011, when the harvest was 103 million tonnes,” he said. However, he preferred to err on the side of caution, especially as much depends on the level of rainfall in the next few weeks.

The 2011/2012 agricultural cycle produced a harvest of only 90 million tonnes, due to drought which reduced crop yields. This year, in spite of a lower cultivated area, volumes are expected to be higher, López said.

On its own, soybean, the star crop, accounts for half of the total harvest.

“If the forecasts are fulfilled, some 80 million tonnes will be exported, representing earnings of 36 billion dollars, out of which 10 billion dollars will go into the state coffers because of (the tax known as) ‘export retentions’,” López said.

With these improved prospects, the issue on the government’s economic agenda that is the greatest irritant at the start of this year is inflation, a variable for which official figures are nearly 15 percentage points lower than those of the private sector and those presented in Congress by the opposition.

On Feb. 1 the International Monetary Fund (IMF) took the unprecedented step of issuing a “declaration of censure” against Argentina because the measures taken to correct its economic statistics “have not been sufficient.”

The IMF gave the country until Sep. 29 to address the inaccuracies in its consumer price index and GDP growth figures.

The government responded through the economy ministry, blaming the IMF for allegedly contributing to the 2001-2002 Argentine banking crisis and attributing the motion of censure to the IMF’s hostility to Argentina’s determination to reduce its external debt.

However, the government did say it was working on a new price index which will come into force in the last quarter of the year.

ECLAC’s overview said the official inflation rate of 10.8 percent was the second highest in the region after Venezuela. If the opposition’s figure is adopted, Argentina’s inflation is the highest in Latin America.

In spite of its reluctance to openly admit the difference between official and unofficial inflation rates, the government is approving wage and pension increases that are closer to the unofficial consumer price index than to the government’s own.

Meanwhile, the domestic trade secretariat is temporarily freezing prices in supermarket chains and also on household appliances. But according to Díaz, “price controls are increasingly ineffective.”