In most parts of the world, people can barely imagine what living with double-digit inflation would be like. So how do Argentines cope when inflation is running above 40%? Elke Wakefield finds out.
For many of us, it’s hard to imagine a place where cars appreciate in value and houses are bought in cash. Where, from one quarter to the next, your rent may go up 20%. Where you can buy a bike, a mobile phone and a television in 50 interest-free installments.
This is Argentina, a country where economic instability tends to form the rule, not the exception. If you ask a local about the economy, they’re likely to roll their eyes and tell you another ‘crisis’ is either already happening or on the way.
One of the perennial problems that Argentina faces is high inflation. According to World Bank Data, the average rate of inflation in Argentina since 1991 is 20% (this figure does not include the years 1975-1990, when the country experienced hyperinflation of up to 5,000%). There were eight years of low inflation in the 1990s, but that decade ended disastrously: in 2001, Argentina declared what was at the time the largest sovereign default in history (Greece has since snatched the title), unleashing unprecedented social and economic misery.
Even in the context of a permanently high-inflation economy, 2016 is managing to stand out. Consumer prices shot up by approximately 23% in the first five months of this year alone, according to the City of Buenos Aires, and annual inflation in the nation’s capital is projected to be around 40% (compare this to neighbouring Chile where inflation last year was 4.6%).
The figures are fantastically high, exceeded only by conflict zones like Ukraine or crisis-stricken Venezuela, but they are real. How do people cope? What is it like to live in a place where the money that bought you a kilo of bread in December buys you only half a kilo the following May?
“Sometimes I sit down and do the accounts and think ‘did I make a mistake?’” says Nilsa, a softly-spoken office administrator who lives in Buenos Aires Province with her two children and husband.
Florencia, her co-worker, a spirited blonde in her late thirties, is a little more blunt: “They’re paying me on Saturday. Today is Wednesday. I don’t have a peso until then.”
Nilsa and Florencia work at a private medical clinic in Barracas, a lower middle class neighbourhood in the southern part of Buenos Aires. They earn about $14,000 (around US$1,000) per month working full-time, ostensibly a decent wage considering that Argentina’s minimum wage is currently about $6,800 per month).
But, even though they say they haven’t really changed their spending habits, this year the money they earn seems to evaporate with ever-increasing rapidity. “Over the last six months we’ve just been going backwards,” says Florencia, who lives with her 14-year-old son in Quilmes, also in Buenos Aires Province. “I live day to day, worrying about everything.”
It’s no surprise she’s feeling the pinch: according to the Foundation of Latin American Economists (FIEL), an average four-person family would need an additional $3,353 (US$240) per month in income in comparison to this time last year just to cover the cost of their basic needs without falling into poverty.
Florencia copes by cutting back wherever possible. “I used to buy a kilo of milanesa – now I buy half a kilo,” she says. “I use everything to the last drop – soap, toothpaste, shampoo – before buying a replacement. And we eat meat only very rarely.”
“Yes, we don’t get together for asados anymore,” sighs Nilsa, referring to that meat-intensive staple of Argentine identity and cuisine.
For Nilsa, managing inflation is almost like a second job. She cannot do her shopping at a single supermarket because they are too expensive, so she scours the local Chinese supermarkets and independent stores looking for the cheapest prices. The purchases she makes are piecemeal because she can’t afford to buy everything at once. “You have to have time and patience to hunt for cheaper prices,” she says.
Many people I spoke to echoed Nilsa’s statement, lamenting the corrosive effect of inflation on all aspects of their life. Time, energy and money that would otherwise have gone into socialising, studying, travelling, going out, dreaming, planning and creating are instead invested in daily economic survival.
Esther, 36, originally from Paraguay, a cheeky, maternal type with dimples, three kids and an endless supply of wisecracks, is not despairing. But she makes clear that high inflation has narrowed her opportunities: “We don’t go hungry, but we don’t go out,” she says.
Esther lives in Quilmes and earns minimum wage at a restaurant in Palermo. Last year, when she returned to work after having her third child, she and her husband began to enjoy the possibilities and freedom afforded by two salaries. “I always wanted my children to have the same opportunities as other kids their age. So last year we did something most weekends. We went to the cinema, to the museum; we went away for the weekend.”
However, this year’s rampant inflation has put an end to this. “We have to make savings wherever we can, so we will leave all that for this year.”
When I ask Florencia if she has savings, she looks at me like I’m mad. I try a different line of questioning: “Do you have any debts?”
“Do I?! Pay for purchases outright? Forget it”, says Florencia, “I pay for everything in installments”.
This brings up a particularly Argentine phenomenon: the ‘cuota’, or installment, system.
In order to encourage spending in an economy where high inflation means wages lag behind the price of goods, many businesses offer interest-free or low-interest payment plans over long periods of time. A walk down your average street in Buenos Aires will reveal enough ‘specials’ and ‘offers’ to make Black Friday pale. Signs advertise electronic goods, appliances, holidays and even groceries in anywhere from three to 50 interest-free installments.
The cuota system is all-pervasive and, given double-digit inflation, it is often seen as a good financial deal. Last year, when things weren’t quite as tight, Florencia went to Brazil for one week with her son. She is paying this trip off in 12 interest-free monthly installments of $1,800, the fixed sum looking ever smaller next to rising prices elsewhere.
Since 2014, the government has also pushed this system with Ahora 12, a credit program that enables cardholders to purchase goods in 12 interest free payments (“Because when one Argentine consumes, many more keep their job”). The program extends to a range of domestically manufactured products – everything from mobile phones to white goods to bus tours – and there is no ceiling on the price of what you can buy.
However, the plan is not for everyone, and the programme’s reach is limited by the fact that many low-income earners are wary of credit cards and financial institutions. Memories of the 2001 crisis, when the government froze bank accounts, combined with the vagaries of the Argentine economy, means they prefer to avoid getting into debt.
Esther says she has never used a credit card and is not interested in acquiring one: “My husband and I pay everything in cash. We’ve seen other people fall into credit card debt and they can’t get out.”
She says she wouldn’t sign up to the program: “It’s all fine at the start, but there will be a moment when everything goes bad and you have to maintain that account.”
The 2016 spike in inflation is caused, in large part, by recent increases in tariffs on basic services like water, electricity, gas and public transport. Referred to as the tarifazos (in Spanish, the suffix ‘azo’ can be added to words to convey a sense of hugeness), they have seen some staggering price increases: gas has gone up, on average, by more than 300%; water by more than 300%; public transport has doubled.
The new government says that, over the long-term, these tariff increases, alongside other pro-market reforms, will help normalise the economy and cure the country of its chronic inflation problem. Most people I spoke to agree the price increases were necessary. Since the 2001 economic crisis, when unemployment hit 40%, the government has subsided these basic services by very high amounts. To take the example of electricity: until this year, Argentines paid 1.7 US cents for every kilowatt of energy where their Chilean and Brazilian neighbours paid 11.9 and 16.5 US cents, respectively.
Still, it’s a bitter pill to swallow. Many say the tariff hikes are “very sudden” and cut deep into the pockets of working class people. “the increase in tariffs is ok because before we weren’t paying enough,” says Nilsa. “But all at the same time? No.”
“Everything has doubled in price. Electricity water, gas, public transport”, says Florencia. Last year, she paid an average of $400 per month for electricity; this year the bill is nearer $800 per month. “I can live without heating or air conditioning. But the kid that plays all day in your house? You can’t just turn off their heating in winter.”
The utility hikes have also put pressure on many small and medium businesses, which struggle to absorb enormous gas and electricity price increases when high inflation means people buy less.
The Argentine Confederation of Medium-Sized Businesses points to the case of a ceramics factory in Chubut whose gas bill rose from $33,400 (US$2,403) in March to $421,000 (US$30,300) in April. They argue that, even with a government-imposed cap of 500% on this increase so that it is reduced to $200,300, the business has become unviable.
“They’re killing me. The prices have gone up so much. Last year my electricity bill was $500, now it’s $1,100. And all I have is this light bulb and the fridge. I freeze in winter and bake in summer.”
I return the next day and talk to her husband, Oscar (“like the awards in the United States!”). I ask him about the kiosk’s takings. He laughs, “nothing but change”. He doesn’t complain but he’s clear-eyed about their situation: “We make it to the end of the month and that’s it.” Framed by the miscellany of the classic Argentine kiosco – chocolates, lollies, tissues, toys, cigarettes, notepads and chewing gum – 70-year-old Oscar smiles ruefully and tells me he wishes for only one thing: “Good health, so I am able to keep working”.
Oscar and Mari are some of the many ‘retired’ Argentines I speak to who continue working full time. They have no choice. Mari can’t live on her pension (“how are you going to live on $3,800 per month?”) and, as a result of the 2001 default and years of persistently high inflation, she and Oscar have no savings or investments.
“We used to have two cars, a factory and a second house in Mar Del Plata”, says Oscar. “Now we have one house and the kiosco.”
This is a constant theme in the conversations I have: the way in which high inflation makes planning for the future, saving and investing very difficult.
“Why did you have to remind me?” says 40-year-old receptionist Patricia clutching her head dramatically, half-joking, half-serious. She needs to renew her rental agreement in August but high inflation means the numbers could go anywhere: “I don’t know how much money I need to get together. That’s stressful.”
Her current plan is to use her aguinaldo – a mandatory “13th month” bonus all employers are required to pay their employees – to pay the difference. “I won’t use that money to buy clothes or paint the house. I will use it to renew the contract for another two years.”
Patricia tells me she is keen to have children but her financial situation makes this impossible. The money she earns disappears quickly in the swirl of rising prices; even if she could put aside part of her salary each month, the corrosive effect of inflation of savings – especially when prices rise faster than interest – would make this pointless.
Finding ways to preserve wealth in a high inflationary environment – where holding on to money is pointless – generates some intriguing results.
I am a little surprised when, after asking Nilsa about her savings account, she tells me about the savings scheme she entered into to buy a car. Purchasing an expensive item? “For me that’s saving,” she says.
An economist I speak to points out that in the topsy-turvy world of Argentine economics, high inflation means that some middle class people buy cars as a means of storing wealth. Although the value of the car drops by 20% the moment they take it out of the store, high inflation means that, over time, the loss is absorbed and they can sell the car for the price they bought it for.
It works like this: instead of putting the extra money you make each month into a bank, where it will just lose its value, you enter into a “savings plan”, paying off a new “0-km” car in up to 84 installments, which are updated to reflect the value of the car, which accompanies inflation. Although this implies the price of the installments increases each month, it also means that the amount you have already paid off is also updated to reflect the inflated price. In this way, money invested in the plan maintains its value and you are insulated from the effects of high inflation. If you sell the plan before paying off all the installments, you can even profit.
Another option for those Argentines with savings to protect is to turn to foreign currencies, which are perceived as more stable. For example, the vast majority of Argentine property is bought and sold in US dollars. This practice is so ingrained that, when the last government introduced currency controls restricting Argentines from purchasing US dollars, the property market came to a grinding halt.
By reducing government subsidies, eliminating ‘inefficient’ taxes, offering tax amnesties to attract offshore wealth back into the country, and restoring confidence in official inflation data, the new business-friendly government hopes to reduce inflation to 5% by 2020.
Are people optimistic?
No one I spoke to was expecting a miracle. But they weren’t about to sell off their assets and emigrate to Uruguay either. They’ve seen it all before – the apocalypses and the rebirths from one administration to the next – and know that that, even if anything can happen, life goes on.
As Florencia and Nilsa’s colleague, Gladis, puts it to me: “Argentines are resilient. We’ve seen it before. We can survive anything.”
*Lead image by Carlos Amato.