Front Burner - Bonus | Nothing is Foreign: How Argentina deals with crushing 104% inflation

Episode Date: May 27, 2023

Argentina's annual inflation rate reached a staggering 104.3 per cent in March. It's one of the highest rates in the world, resulting in a cost-of-living crisis for many in the country. It's not a new problem in Argentina, where the market has been volatile for decades, especially during the 1980s debt crisis.From bartering to stocking up on goods before inflation spikes, Argentines have found inventive ways to cope with this economic reality. But there's also been growing discontent with the government, and the country's relationship with the International Monetary Fund (IMF) — especially as a general election approaches this fall. This episode from Nothing is foreign looks at how people on the ground deal with this sky-high inflation rate, the historical conditions that led to this and what happens to a society when it's trapped in a cycle of debt and austerity. More episodes are available at: https://link.chtbl.com/M-fZk-5h

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi there, Alex Panetta here. We want to share a special bonus episode with you today from Nothing is Foreign about how Argentina deals with crushing inflation. Argentina's annual inflation rate reached a staggering 104.3% in March. It's one of the highest rates in the world, resulting in a cost of living crisis for many in the country. It's not a new problem in Argentina where the market

has been volatile for decades, especially during the 1980s debt crisis, but there's been growing discontent with the government and the country's relationship with the International Monetary Fund over this issue, especially as a general election approaches this fall. This episode looks at how people on the ground deal with this sky-high inflation rate, the historical conditions that led to this, and what happens to a society when it's trapped in a cycle of debt and austerity. Have a listen. One of the biggest challenges facing people around the world right now is the rising cost of living.

the world right now is the rising cost of living. We're still seeing the prices of food and energy being pushed up by pandemic-related supply chain disruptions and the ripple effects of the Russia- Ukraine war. But while inflation's continued to make headlines globally for the last couple of years, in Argentina, it's something people have been dealing with for much of the last 70 years and have kind of gotten used to. But even for them, what's happening right now is on a whole other level. This airport in Argentina's capital is filled with homeless people. It's a snapshot of an economic crisis that's getting worse. Last month, for the first time since the early 90s, inflation in Argentina soared past 100%. Right now, it's at around 104%, meaning that the price of a lot of consumer goods has more than doubled since

2022. It's very hard to be honest. I have two children, a husband. During the pandemic, my husband lost his job and now we're working again with two of us, but it's still not enough. It's not enough. It's not enough at all. Nilda Osuna is a 45-year-old house cleaner. She talked to us while waiting for the bus home in Buenos Aires. Nilda works by the hour and earns around 80,000 pesos a month, which is around 370 U.S. dollars. My husband is earning a little more as a construction worker.

He earns 5,000 pesos per day. But if you go to the grocery store, a little tray of beef costs you 2,000 pesos. Argentina's agricultural sector has been hit really hard by drought this year, and food prices have seen some of the highest increases. In the greater Buenos Aires region, the price of beef went up by 30 percent from January to February. And this is a big deal in Argentina where beef has always been a staple, but for a lot of people is now a luxury. A normal trip to the grocery store for Nilda means spending more than a third of her monthly earnings.

Honestly, with 30,000 pesos, you barely bring anything home. It hurts a lot. More for my children. When my husband had another job, he might have earned a little more. We could treat ourselves, but not anymore. Things are very hard. Argentina's economy has been highly volatile for a lot of the last century. And many economists say the measures that successive governments have taken to try and fix it have only made the situation worse. Things like printing more money, artificially pegging the exchange rate, and taking massive loans from the International Monetary Fund.

With 40% of the population living in poverty at the end of last year, Argentines have had to once again get creative about how to make ends meet. And it's resulted in some pretty interesting solutions. This week on the show, we're going to look at how they're coping. Natalie Alcoba is a freelance journalist based in Buenos Aires. She's also a former colleague and a good friend of mine who's been covering the situation for a Aires. She's also a former colleague and a good friend of mine who's been covering the situation for a while. She's going to walk us through what it's like to live in a place that's seeing triple-digit inflation, the root causes of this crisis,

and how it's becoming a defining issue in Argentina's upcoming general election. I'm Tamara Kandaker, and you're listening to Nothing is Foreign. Hey, Nat, welcome to the show. I'm so glad to be talking to you about this. Me too. It's nice to hear your voice. Yeah, it's nice to hear your voice too. And this isn't a happy story, but it's an important one. So I was wondering if we could start by just painting a

picture of what inflation looks like on the ground in Argentina. So right now it's at 104%. And for context, for people who are listening in Canada, the number that we're seeing is 4%. So can you walk me through what that means in a practical sense? What has it been like, for example, to do groceries for the last little while? The word that continues to always resonate is disorienting, right? Like to be in a place where prices really are going up by double digits, sometimes on a monthly basis. In many cases, you're walking into a store and you really don't know what something is supposed to be worth. There's often also a really huge range from store to store,

from neighborhood to neighborhood, and all of which kind of creates this constant state of confusion and makes it really hard to figure out how to budget, whether or not the purchases you're making are correct. Right, right. So how do you plan if you have no idea how much things are going to cost when you're thinking of budgeting for shopping? That's the thing that you can't do. And that's the thing that Argentines will tell you time and again,

how difficult it is to plan anything. So you've got the latest figures that just came out a few days ago said that in the last month, the prices jumped by an average of 10%. But of course, that's an average. If you drill down into the specifics, you've got numbers that are really hard to even fathom, like fruit, fruit and vegetables up 15% in the last month, eggs up 25%, lettuce up 58%. Like there's a whole host of factors behind that. But I don't really know how to answer how you plan for it. I mean, it's ultimately about buying less.

I mean, here, of course, there are big grocery chains and there's the neighborhood grocery store, but a lot of people also buy their fruits and vegetables from the fruit and vegetable stand on the corner. Those merchants will talk about how they've seen the patterns of consumption change. So instead of going to buy a kilo of apples, people will go in and buy a couple, you know, whatever it is that they need immediately.

The other day I came and asked for three tangerines, two oranges, two bananas and a half a kilo of tomatoes. When he told me it cost 650 pesos, I told him to take everything out and leave just the tomatoes because I don't have enough money. because I don't have enough money. When I go to the grocery store or to buy whatever it is I need, I don't know how much to bring with me. I'm usually working with cash. There will be scenarios where I just didn't bring enough. I'm at the cash register and I just don't have enough. And so I adjust and take out a few items that I thought I was going to bring home.

I've read quotes from people who've been interviewed just sort of on the street. And there's this one guy who was saying, you never go shopping in only one place. You compare like five or six supermarkets and it's almost like a treasure hunt. So you'd go to one store for detergent and another store for eggs. Do you find yourself doing stuff like that too? Yeah. I mean, I think many Argentines are searching around for that best option, like that cheapest price. And so in fact, there's actually even apps that have been developed in which people can kind of do a quick survey of their neighborhood and see what the prices are on offer and pick and choose that way.

So the mom and pop shop that you go to, the small grocery store, I know of one that they actually build WhatsApp groups that's filled with their clientele. So, you know, with thousands of members and the merchants are publishing, you know, the items that are on sale, you know, different brands that they've brought in that are perhaps more affordable. They look for these alternatives, these workarounds that at least can give their customers some variety that's closest to the cheapest price point. Because of course, in all of this, there's this dance that shop owners have to do, which is, you know, your providers are increasing the prices on you. And so then that means that you then need to figure out how to increase that on your customers, but not doing so at a rate that's so dramatic in which you scare your own clients. In terms of the average consumer, who is hit hardest by all of this?

Are there certain segments of the population that are impacted more? Yeah, I think without question, lower income earners are hit the hardest in this context. But this is something that stretches even beyond that. I mean, even for a middle class family at this stage, it's hard to make ends meet. And i'm talking about people who have permanent work you know who know how much they're going to be earning who may in fact even have in some cases like the luxury of knowing that there is a an increase built into their salary so in that segment it is difficult imagine how difficult it is uh with all of the people argentina's economy is, you know, roughly almost 50% of it is informal. And by informal, I mean people who don't have a fixed salary, don't have steady work. Of course, you know, don't have labor protections, benefits, pensions, any of that.

In that context, you know, it's even harder to keep up with inflation because so many other things have to happen before you're able to advocate for your wages to go up. You mentioned earlier these apps that people use as a way of comparing prices to cope. And I know that because Argentina has been dealing with high inflation for so many decades, people have had to figure out how to adapt. So aside from the example of those apps, can you tell me about some of the ways that people deal with these price fluctuations? If you are somebody who is lucky enough to be able to save money in this country, then you are turning to the U dollar. And this is not something that is new in the 100% inflation. This is happening for years. And in the face of that, the government has over

the years, different governments have imposed currency controls, which actually limit how much foreign currency somebody can purchase. And currently that is you can buy 200 US dollars at the official rate. So outside of that rate, you're turning to the street dollar, which is commonly referred to here as the dollar blue. Right now it's over 400 pesos for one US dollar. So that's it's not the official rate, it's a huge benchmark and reference point. And there is this relationship, real or perceived, between how things are going for you and what that rate is. That's one tool, which is shielding your money with a harder currency. If you're somebody like so many people here who really cannot afford to do this, and in particular, this is speaking about the lowest income earners in Argentina, have once again turned to bartering to get by. I mean, Argentina has a history with bartering and

bartering clubs in particular. After the economy crashed in 2001, bartering became a very important form of survival. And at that stage, we were talking about millions of people across classes that had to exchange whatever goods they had to be able to survive. Now what we've seen, and for the last while or so, is bartering basically happening online. So I'm talking about dozens of Facebook groups in which people will post photos about items that they have that they would like to exchange for food. You'll have somebody posting, you know, a pair of pants, shirt, and they may say, I'm looking for a bottle of oil, a bag of sugar, a satchel of milk. They'll be specific. And then in the comments section, it's kind of like an auction that ends up happening. People are doing this because

they need to do this in order to feed their families. But then there's also like an angle of collective help. The third thing that I've observed and that I've, you know, at first, it took me a minute to wrap my head around it because it's kind of counterintuitive, which is that in these times of crisis, people are actually spending their money rather than hold on to cash that they know is going to be worth a lot less in a month or two. When you receive your salary, do you spend as much? As much as I can because the next month is going to be really hard to buy stuff. We don't have money in Argentina. It's really hard to buy dollars. And expensive, but I try to buy stuff that I can sell tomorrow to recover the money.

Like in my case, cameras, analogic cameras to collection and stuff like that. They'd rather spend it now on hard goods. You know, furniture, television, electronics. There's a lot of purchasing that happens here in installments. All stores are like, buy such and such a thing. Six installments without interest, 12 installments. All stores are like, buy such and such a thing, six installments without interest, 12 installments without interest. This is a mechanism that shop owners use here in order to stimulate consumption and it works. Sometimes I reflect on what all of this means and or what

it says when a society is like in this constant loop of crisis. Like, I really think that it's like created the situation in which people really are just living in the now. You really just have what's in front of you. And so you're making choices based on what you know now, because you're quite certain that tomorrow things are going to change. Hi, it's Ramit Sethi here. National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix.

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To listen to this podcast, just search for Money for Couples. People have been finding ways to cope with this inflation but what has the government been doing to help people and to address this crisis i mean i think the most concrete action has been at least the one that would reach most people has been various price control schemes. And these are programs that typically last around three months. And there are agreements that the government hammers out with big grocery store chains on a list of products. So it's around 2,000 just grocery store products that they fix prices on for this period of time. And so that means that when you go into a grocery store, you'll see like a little sign that says Precios Justos, which is the name of this program

and the particular brand that's offered at this fixed price. The idea is that there is an option that people can turn to that is consistent. These arrangements, though, the price control schemes are ones with larger grocery store chains. So that means that there's a ton of mom and pop, small grocers, corner stores that don't have access to that same program. It just means that there is this program, but access to it varies. So there are all these other factors that get in the way of the effectiveness of that program. But it is the government's attempt at,

at least in the short term, kind of doing what it can to soften the blow. And then there are different subsidies that are available to different sectors of society, lower income in particular, single mothers, of course, increases to pension. But none of this really is ever really seen as enough. We talked earlier about how 100 percent inflation for Argentina is high, but things have been trending this way for a long time and double digit inflation has been kind of the norm for a while. What do you think we need to understand about how Argentina got to this point? I think we need to understand that this is that inflation is is a chronic problem here, as you say. I mean, we're talking dating back decades, like to the early

20th century, it was double digit inflation. And over the course of its history, it has had moments of peaks, huge peaks that oftentimes is paired with political instability, like in the 60s and the 70s, great deal of instability, peaks of 400% inflation. Can't even fathom what that would be like. But then came an even more difficult time in the 1980s of hyperinflation, 1989 in particular, when there was more than 3000 percent inflation in one year. And when, you know, when I've been out reporting on this issue in these last few years, people will talk about that time, like it's kind of seared in their collective memory of, you know, a dime when you would go out and the prices were changing by the hour. That then led to this period of what I think we can call like fictional stability in the 1990s, when the government essentially pegged its currency to the U.S. dollar for that decade, something that was unsustainable and that paved the way for

the notorious financial crisis of 2001 when the economy collapsed, the currency completely devalued. There were five presidents in two weeks, you know, violent crackdown as people went to the street to protest. So after essentially like the bottom fell out, Argentina found its footing again, like in the early 2000s, mid 2000s, it was a period of growth. It was kind of also partnered with the fact that there was a commodity boom around the world. And that really helped Latin American economies. I mean, that boom driven by economic growth in China. But it meant that there was this period of relative stability in Argentina, which the country was able to pay off its debts.

I guess what we see is this roller coaster, right? Like these up and down periods, you know, that stability, unfortunately, was relatively short lived. And so by 2010, 2012, inflation's once again starting to creep up. 2015, a new government and the government ends up once again taking out an enormous loan from the International Monetary Fund, which is a very controversial loan that continues to be a big point of contention now because it once again thrust Argentina into this cycle of having huge bills to pay and really no way to pay them. You layer on top of that the pandemic, which created this global instability and exacerbated things even further. And in Argentina as well, in this last year for sure, it's been going through this brutal drought,

which in a country, a breadbasket nation that really relies on this agricultural sector for revenue and export, that's been a huge part of its own economic struggle. So it's like this cocktail of factors that create this turbulent environment here. That's all really, really interesting history and kind of illustrates just how complicated this issue is. I wanted to pick up on what you said about the IMF. So I know Argentina has borrowed a lot of money from the IMF to help address some of these issues, like this loan that you mentioned. In 2018, $57 billion, which was renegotiated to $44 billion in 2022 because Argentina, from what I understand, was struggling to keep up with its debt repayment plan.

And you mentioned that this has been really controversial. And I've seen that there have been politicians and activists saying that Argentina shouldn't pay back its loans or take any more money from the IMF. Could you just unpack that a little bit more? Why is this relationship with the IMF so controversial? Here in Argentina, essentially, like the IMF is considered to be a villain, right? Like its presence in Argentina is seen as by many people as opportunistic. Typically, you know, these loans come with prescriptions that are tough for people to swallow. Austerity measures, everything from reining in social spending, cutting back on energy subsidies,

all things that in this context, at least, like people feel that they need more help not not less and so that drives people to go out to the street to kind of protest this presence of this of this international financial institution that that they see as illegitimate and you're right there is a school of thought here that says that Argentina is actually better off defaulting than than paying you know, these enormous sums of money when, you know, there's people that don't have enough food to put on the table, you know, that has a very high rate of poverty at around 40 percent. Thousands of people in front of the presidential palace demanded the government to prioritize the

people instead of the IMF. Jorge Altamira has been a lawmaker for years. The government is renegotiating the agreement and they know they won't be able to pay it. And in two years, we will have the same problem. We cannot pay back that amount of money without strangling the poorest. You know, on the other hand, people say that if it defaults, you know, every time it defaults, that affects its ability to borrow money, which chokes it in other ways. We're in an election year once again. And so the question of inflation, the question of this legitimacy of the IMF deal is front and center.

How big of an election issue do you think this do you think inflation is going to be this October? It's one of the defining issues and it certainly makes it a lot more difficult for the government to get reelected. I mean, the current government's popularity is dismal. You know, this context of how difficult it was in the pandemic, it's like that isn't, people don't see that as an excuse. And many people generally think that the economy has been mismanaged. There is a candidate, a libertarian candidate, a Trump like politician here who is running for president, who's talking about how Argentina should make the U.S. dollar. It's its official currency, which is, you know, an idea that's floated every now and then and is highly controversial. And certainly like economists here talk about how it would be a massive shock to the system, you know, salaries immediately

dropping in value, dramatic devaluation. On the other hand, people say that's exactly what Argentina needs, a massive shock to the system. That's where we're at with the debate. The libertarian candidate you're talking about is Javier Millet, right? Yeah, that's right. He's an economist who kind of rose to fame as a pundit, you know, really has taken this anti-establishment narrative and talked about how they're all out to steal your money. People are seeing him as an alternative. They are tired of the current situation. There's just deep fatigue, the same thing repeating over and over again. I've seen a lot of really pessimistic takes on this

crisis, like a lot of experts saying Argentina needs to do like a fundamental economic overhaul. Nothing that the government's done so far has really been helping. I also just read this article in Bloomberg where someone put the question of how to solve the inflation crisis in Argentina to chat GPT. Wow. And even chat GPT could not solve the problem. That's where we're at. So just like given the kind of fatigue that you're talking about, I'm wondering like what are you hearing from people of what they want to see? I know you've interviewed people about this. Do people feel the same way or are there solutions that they're talking about and sort of getting behind? I just was chatting with people about the current economic crisis and I don't know.

I mean, it may have just been the way the conversations went, but they can't even think about solutions because, you know, their concerns are so immediate and day-to-day. So they are not really expecting or relying on some kind of macro change that's going to suddenly make things easier for their family. We're trimming back everywhere. I'm the only one who's working in my family. My husband lost his job. We're trimming back everywhere. I'm the only one who's working in my family. My husband lost his job, my son is working, but he earns very little. So we're just cutting back as much as possible.

There's also, for the most part, this feeling of not knowing who to trust to make things better. But for the average person, you've got to take care of yourself and take care of your community. I do think that Argentina, you know, in the face of these recurring crises, many Argentines have kind of turned to the collective, to their neighborhood, to their school, amongst their family. So there is that sense of turning to each other to get through it. It's an incredibly resilient society. That's what I take away from it. In spite of all of this and all of these problems, Argentines do survive and have figured out how to make it to tomorrow. have figured out how to make it to tomorrow. Nat, thank you so much for this conversation.

It was super interesting, and I hope people check out your reporting on this. Thank you. I really appreciate it. Thanks. I really appreciate your interest. It was good to talk to you. All right, that's all for this week. Thank you so much for listening. Our producer is Joyta Shangupta, and our sound designer is Yvette Sin. Our senior producer is Elaine Chao. The executive producer of Nothing Is Foreign is Nick McKay-Blokos.

Special thanks this week to Natalie Alcoba and Paulina Abad. Nothing is Foreign is a co-production of CBC News and CBC Podcasts. Our theme music is by Joseph Chavison. I'm Tamara Kandaker. Thank you so much for listening, and I will talk to you next week. That was an episode from the podcast Nothing is Foreign. You can listen to more episodes right now on the CBC Listen app or wherever you get your podcasts. For more CBC podcasts, go to cbc.ca slash podcasts.