4/8/2024 - Economy and Finance

Faced with the vice of asking...

By horacio gustavo ammaturo

Faced with the vice of asking...

Argentines have been witnessing dizzying changes in prices for several decades now.


During the last five months, the recomposition and decomposition of relative prices have left us without a local reference, that is to say, it is even difficult for us to imagine how much things are worth.


In general, in the past, the blue dollar served as a beacon or reference to compare prices.


We converted pesos to dollars and that was useful to verify the relationship between goods and services, both within Argentina and with other countries.


It was usual to find products whose prices in official dollars were higher than the international ones that, when considered in terms of blue dollar, were cheaper, some even at a lower value than in their origin.


The exchange rate gaps encouraged imports, discouraged exports and boosted consumption. All these circumstances put further pressure on the U.S. currency. As foreign currency began to be scarce, the premium for accessing the official exchange rate became greater, that is to say, the gap became wider and wider, meaning higher profit margins for those who could access the subsidized dollars and greater purchasing power for those who received pesos.


The new administration of President Milei intends to put an end to this discretional scheme, which ran out of steam in the middle of last year, before the presidential elections.


In this sense, among other measures,


  • It promoted a strong devaluation of the official dollar with the purpose of sincerifying an exchange rate that no longer existed.


  • He liberalized the price of fuels, previously regulated, which meant an increase of 200%, i.e. their price was multiplied by 3.


  • It granted importers an exchange insurance in the form of a public bond in dollars under the denomination of BOPREAL (Bonds for the Reconstruction of a Free Argentina) whose approximate quotation represents a little less than 700 pesos per dollar. An elegant way out for the huge stock of private commercial debt in dollars that existed by the end of 2023, which would represent a potential loss for importers, as they assume a loss due to a 100% exchange rate difference. However, this loss was mitigated by the profitability of government securities tied to the dollar, which rose 118%, i.e., once again the financial sectors and importers were protected by the government. Only in this case it is a libertarian government.


We focus on these decisions because we understand that they are the ones that affect prices automatically and directly.


The devaluation, although it would have a minor impact due to the difficulty to access the "old official dollar", influenced tax costs, since before, all tax references, import duties, vat on purchases or sales in dollars, or personal property, were settled at a lower exchange rate, the official one. In this case, the gap reduced the tax incidence to less than half. These higher costs in pesos are obviously passed on to prices.


The phenomenal increase in fuels has an impact on all items, from transportation, distribution or energy generation. They also have a direct influence on prices.


The exchange insurance that provided certainty, at least until the first maturity of the bond, represents once again a change in the commercial conditions between private parties and a new state intervention. This has generated discomfort in international and local companies.


However, none of this justifies many of the wild increases that took place in Argentinean shelves and stores. Products whose prices are double those in Europe, Uruguay or the United States.


The Minister of Economy called for a meeting with businessmen and price makers to request that they adjust them to "more reasonable values".


In fact, as an incentive, he prepared a list of products that could be imported under better conditions than the rest. Moreover, he went directly to the crossroads of some businessmen anticipating that foreign competition will force him to lower his prices soon.


Beyond state interventions, without a doubt, many prices are expensive.


Solving this issue with threats or discretionary conditions for occasional importers is far from being a solution and looks more like an opportunity or a bargain.


There are institutions for the defense of competition that serve to resolve the companies' mischief, which often serve as a cover for confusion or lack of confidence in what is to come.


On the other hand, social networks and the media could be of great help to encourage consumers about the excesses that occur in relative prices.


It is useful to remember that Spanish saying that "before the vice of asking is the virtue of not giving", applicable in this case so that if a product is too expensive, it should not be bought.


There will always be a substitute and the drop in demand will put the supplier in order.


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horacio gustavo ammaturo

horacio gustavo ammaturo

I am Gustavo Ammaturo. I have a degree in Economics. CEO and Director of infrastructure, energy and telecommunications companies. Founder and mentor of Fintech, DeFi and software development companies. Blockchain Product Designer.

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