In the last sixty years our country has a endemic disease called “inflation” that back in the 60s, and until 1974, was close to 15 to 18%, and in 1975 when Argentina requested a foreign loan equivalent to 50% of its debt up to that moment (US$ 4 MM) grew to the order of 40%.
With the arrival of the national reorganization process, between 1976 and 1983, the debt reached US$56MM, and the inflation increased to 200% per yearand to add insult to injury, this growth in debt was used to de-industrialize the country, with unemployment reaching 7% and poverty growing from 6% to 30%.
In the same period, given the growth in similar percentages of debt in Brazil, they were used to industrialize the country. Between 1983 and 1988 the inflationary level remained at that 200% that came from the dictatorshipbut in 1989, and as a result of a political and social crisis, it reached 2000% per year.
In 1990, inflation managed to drop to 600%, and between the application of the BONEX plan (which exchanged fixed terms for national bonds) to dry up the market (a euphemism to say that they did not leave a ticket in circulation beyond what was necessary to eat) and the Convertibility Law of 1991, which tied the peso in fictitious equality with the US dollar, 0% inflation accompanied until 1997and between 1998-2001 we had deflation.
Negative inflation motivated by the strong recession that the country was experiencing, taking unemployment to 14% and poverty to levels of 57% in 2002. Strong inflation was unleashed in the first 4 months after leaving convertibility and the new debt: between 1989 and 2001 we went from US$60 million to US$225 million between bondholders and multilateral organizations.
Until 2006 inflation was close to 6% per year, reaching 27% per year in 2015. Between 2016 and 2019 our country went from indebting itself from around US$100MM to US$275MM again between bondholders and the IMF, with the aggravating circumstance that in the 1990s all public companies had been privatized, and the product of These privatizations between 1991 and 1994, approximately US$ 41 million, never entered the coffers of the BCRA.
Inflation in our country was due to two very strong reasons, as can be seen: it climbed steps that could not be reduced with each jump of our external debt; and when we had dollarizing moments (Beginning in the 60’s, the stage of the dictatorship being and done with the classic “give me 2” in the trips to Miami, and the Convertibility legalizing it and incorporating it into laws of public services and rates).
Although the entry into this vicious circle comes from a long time ago, the exit must be done in the reverse process. The first point has already been made: refinance external debt with IMF, Paris Club and bondholders. The second point is to make return the dollars that from the National State allowed them to legally leave the country between 2016 and 2019 (US$ 55 million approx).
The third point is adjust public service laws and hydrocarbon prices (oil and byproducts). Both the second and the third point can be carried out simultaneously, but its result is only once and currently allows current inflation to be lowered by about 15 points: from the current estimated 52% to about 37%. And knowing that YPF dominates 60% of the local fuel market, and almost 30% of the gas sold in the country, the third point is not impossible
By Fabian Medina
Economist and tax specialist
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