Argentine government calls on businesses to cap prices

By Charles Newbery, Wednesday, April 23, 2014

But executives say a plan is needed to tackle surging inflation as economic recession looms

But executives say a plan is needed to tackle surging inflation as economic recession looms

BUENOS AIRES, Argentina – Argentina’s government called on businesses Tuesday to help fight double-digit inflation by capping prices.

Argentina, the third-biggest economy in Latin America, now has the among the highest inflation rates in the world, trailing only Venezuela at 56 percent and Sudan at 42 percent, according to the International Monetary Fund’s World Economic Outlook report published earlier this month.

The pace of rising prices is raising concerns that the economy could fall into recession this year, leading to a reduction in corporate profits, job losses and a rise in poverty.

“The best contribution that executives can make is not raise the prices of the goods and services they produce,” Jorge Capitanich, the president’s chief of staff, said in a televised press conference.

Capitanich  spoke a day after 38 business groups put out a document calling on President Cristina Fernandez de Kirchner and her administration to do more to lower inflation, which private estimates suggest could surpass 35 percent this year after hitting 28 percent annualized in 2013.

The groups, which meet at a forum in Buenos Aires on Monday, said they want the government to draft and put into action “macroeconomic measures that attack the problem comprehensively.”

Capitanich said that he has yet to receive a copy of the document but added that the administration would read it.

The document, and Capitanich’s initial response, is the latest sign of how inflation is returning to haunt Argentina after bouts of hyperinflation between 1975 and 1991. While a currency regime pegging the peso one-to-one with the U.S. dollar tamed inflation in the 1990s, prices started to rise again after the currency was refloated in the 2000s.

Cristiano Rattazzi, who runs Fiat Argentina, the biggest car manufacturer in the country, said it won’t be easy to bring inflation down to reasonable levels like the 1.5 percent in the U.S. or the 5.5 percent average in emerging markets, according to the IMF report.

“Inflation is a serious problem that’s not cured with aspirin,” Rattazzi said on Radio La Red.

He said that while many countries took steps to reduce inflation in 2003 as the global economy improved, Argentina instead focused on spurring growth and tax collections with rising prices. Inflation hit double that of the global average in 2005 and 2006 before running into the double digits in 2007 and reaching 25 percent annual in 2010.

“Argentina let the economy grow” without clamping down on inflation, Rattazzi said. “The economy got drugged with inflation and now it will be a lot harder to reduce.”

President Fernandez de Kirchner, who has governed since 2007, started to adjust her economic policies late last year, bringing on a new economic minister and central bank president. The economic team has deepened price controls, raised interest rates, devalued the peso and cut some spending.

But most economists say spending must be further cut because the central bank prints pesos to cover much of the expenditures, which in a vicious cycle expands the supply of pesos and fuels inflation. Public spending rose by an average of 32 percent a year between 2010 and 2013 and quickened to about 40 percent in the first quarter of this year, according to LCG, an economic consultancy in Buenos Aires.

Jaime Campos, president of the Argentine Executive Association, said reducing inflation won’t be as easy as companies capping prices as Capitanich suggests.

“We are not responsible for inflation,” he said on Radio Continental.

The government “must move forward with an anti-inflation plan” focused on reducing government spending, taxes and monetary expansion, Campos said. “The leadership of this policy to lower inflation has to be in the hands of the authorities.”

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