Volume 43, Number 171,
October-December 2012
Argentina and Brazil:
Macroeconomic Challenges
Eduardo Bastian and Elena Soihet

Moving on to the Argentinean case, it can be observed that the neighboring country’s macroeconomic regime also showed favorable results related to the goals it intended to meet. From the point of view of economic growth, the government’s major goal, the economy grew at an impressive average rate of 8.5% in the period 2003-2008. Due to the international crisis, the economy was paralyzed in 2009, but quickly recovered in 2010. Moreover, Argentinean industry began to develop again during this growth cycle. Because the industrial sector suffered many losses during the convertibility crisis, it is generally said today that Argentina is in a process of reindustrialization. Although there have not been key changes in the industry profile,25 there were signs of recovery from the convertibility phase, such as the fact that “exports of industrial origin rose in quantum to an average rate of 12% between 2002 and 2007” (Amico, 2008: 35).

Moreover, Argentina has also been systematically accumulating international reserves since 2003. According to data from the Central Bank of Brazil, Argentinean reserves came to a total of 9 billion dollars in July 2002 and reached nearly 50 billion dollars in December 2010.

However, like the case of Brazil, the Argentinean regime has also produced undesirable collateral effects. Still, in Argentina, the main problem resulting from the current regime is the resurgence of inflation. To understand why inflation in Argentina has recently worsened, it is necessary to examine the performance of the country’s economic strategy.

The unstable and competitive exchange rate during the first years of the new regime allowed for a rapid response of exports, which together with the boom in the international commodities market provided surpluses in the trade balance and also contributed to obtaining surpluses in public accounts, which were, from 2003-2006, on the order of 3% of gdp (Cunha & Ferrari, 2009: 9-11 apud imf, 2005). Thus a combination of twin surpluses was created (Cunha & Ferrari, 2009: 19, Cárdenas et al., 2010: 44).

Initially, extreme currency devaluation in 2002 did not result in salary increases. Facing an unemployment rate of 22%, salary demands were postponed, which resulted in maintaining the nominal salary and decreasing the real salary (Levy-Yeyati & Valenzuela, 2007: 207). In this first phase of the new regime, it was possible to have high growth rates and increasing employment rates, while inflation rates remained at acceptable levels (Curia, 2007: 127-128).

The inflationary problem began when the economy began to get closer to pre-crisis levels.26 At that time, with the economy growing and employment rates falling, workers began to ask for salary readjustments to compensate for the real losses suffered following the extreme devaluation in 2002, in such a way that real salaries started to rise. Calculated based on the National Statistics and Census Institute (indec) consumer price index, real salaries began to rise starting in 2003 and beginning in 2007, began to register real increases relative to pre-crisis levels27 (Fabris et al., 2009, 23).

During this same period there was also another reinforcement of this process: the rise in commodities prices in the international market. The rise in the international price of agricultural commodities — a product that Argentina exported — put pressure on prices in the domestic market, as producers would not accept selling domestically at lower prices than they could obtain in the international market. Moreover, most of the Argentinean export pattern was made up of goods with a large weight in the popular consumption basket, which affected the purchasing power of workers and encouraged them to try to compensate for these losses (Amico, 2008: 46, Levy-Yeyati & Valenzuela, 2007: 208). Facing the pressure to increase salaries, businessmen, on the other side, increased prices to defend the participation of profits in income, pushing inflation rates higher. As Amico (2008; 2010) suggests, current Argentinean inflation seems linked to this cost shock — associated with the currency adjustment and increased commodities prices — and with the resulting distribution conflict (Amico, 2008: 43, 46; Amico, 2010: 14, 20).

25 For details, see Azpiazu & Schorr (2010).

26 Analysis of current inflation in Argentina is largely based on Amico (2008; 2010).

27 Deflating with an alternative price index, for example the 7 province IPC, real profits for workers starting in 2007 are still much lower than those obtained by the indec index. This difference exists due to the fact that since 2007, we suspect that indec has calculated indices that largely underestimate real inflation.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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