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GHEI: Argentina’s wishful thinking
Price controls the last gasp of a doomed economy
Question of the Day
Supermarkets in Argentina can't raise prices over the next two months. This is the government's latest idea for bringing rising inflation under control, but it's based on tired, old notions that have always failed in the past.
The South American country's dalliance with price controls follows hard on the heels of an International Monetary Fund (IMF) censure of the government's dubious inflation statistics. The embarrassing incident underscores how Argentina has become a textbook example of a once-wealthy and prosperous nation with generous natural resources that has tumbled off the economic cliff.
A century ago, Argentina boasted one of the planet's 10 strongest economies. Now the World Bank ranks Argentina at No. 62. The plunge began in earnest in the 1940s when Juan Peron nationalized a swath of the economy. The same impulse to limit economic freedom remains very much alive in President Cristina Fernandez's decision to nationalize the country's leading oil company, Yacimientos Petroliferos Fiscales (YPF) last April, a move that resulted in threats of retribution from Spain, the home base of YPF's parent company.
The Argentine people are the ones left to suffer as unsustainable policies push up public debt and drive crippling inflation. Argentina has suffered two hyperinflation episodes. In 1990, at the peak of the most recent episode, monthly inflation approached 200 percent. Argentina was forced to tie its currency to the U.S. dollar to enhance the credibility of its commitment to reform and regain access to credit markets. Unfortunately, Buenos Aires didn't change its ways, and the profligacy never went away. That's why Argentina defaulted a decade ago.
Because of the devastating effect on the public, inflation remains political kryptonite in Argentina. So it's no surprise the government has done its best to understate the extent of the problem. Not only does the government tinker with the definition of inflation to keep the official numbers low, but it also slams economists with fines if their estimates show a higher number than the official line. Private estimates of annual inflation are around 25 percent, well above the government's 10.8 percent figure.
The IMF, with its censure and ability to provide access to credit, might well be the one institution with the leverage needed to force a bit of honesty into Argentina's data. The IMF can initiate sanctions on the nation for failing to address the problems identified by the numbers. The punishment can include expulsion from the fund. Better data will certainly add transparency, but it's not nearly enough. Political leaders need to reverse course if Argentinians ever expect to feel relief.
The economy is now listed among the least free in the region, ranking 158th in the world. The latest attempt at freezing prices shows there's little hope of change anytime soon. The same big-government philosophy seen during Peronism never left Argentina.
Here in the United States, the problem is eerily similar. We enjoy great abundance of natural resources and a historic dominance over rival economies. Yet our government is squandering this bounty, headed on a course of reduced economic freedom. At least we still have time to learn from the mistakes of others before we share the Argentine fate.
Nita Ghei is a contributing Opinion writer for The Washington Times and Policy Research Editor at the Mercatus Center.
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