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Sticker shock in Argentina after major currency devaluation

Published:Sunday | December 20, 2015 | 12:00 AM
President of Argentina, Mauricio Macri.

Argentines expressed shock at soaring prices on Friday and a major union called for protests to demand salary increases in the initial fallout from a major devaluation of the South American nation's currency.

The price hikes came after the new administration of President Mauricio Macri on Thursday lifted restrictions on the buying of US dollars. That led to a 30 per cent devaluation of the Argentine peso vis-·-vis the dollar, which was immediately felt across the country.

Supermarket shoppers said Friday they'll have to buy less of some products like bread and even cut out some things like beef, practically sacrilegious in a country known for its choice meats.

Gisela Guana, a 26-year-old maid, said that earlier this week she could buy bread for 13 Argentine pesos (US$0.92) per kilogram or 42 cents a pound. Now it's 17 pesos (US$1.21) or 55 cents a pound.

"What's happening is scary," said Guana, who earns 7,500 pesos (US$535) a month. "Workers are the ones who are going to pay" for the devaluation.

Even before Thursday, Argentines had been complaining for weeks about prices rising even faster than usual in a country with one of the hemisphere's most rapid inflation rates.

Macri, who ran on promises to liberalise Latin America's third-largest economy, repeatedly said he would lift currency restrictions.

So between his election victory on November 22 and his inauguration on December 10, supermarkets had been increasing prices to brace themselves for a devaluation. Several businesses, from textile factories to construction companies simply shut down, figuring it was better to see what happened with the peso rather than risk decisions that might later be costly.

Despite the long run-up, Thursday's devaluation was a blow for many. It was also confirmation that major changes were coming after 12 years of largely protectionist economic policies.

The ripple effects were immediate.

Pablo Micheli, leader of the large Argentine Central Workers union, demanded a 5,000-peso (US$357) bonus for workers as compensation for the devaluation. He

promised a march on Tuesday to reject all of Macri's economic changes of the past week, including the lifting of export taxes that will be a boon to the agricultural sector.

The Argentine Chamber of Supermarkets acknowledged the price hikes and warned shoppers that even more increases were inevitable.

Yearly inflation is estimated at around 30 per cent, a figure certain to rise in coming months. Finance Minister Alfonso Prat-Gay said earlier this week that Macri's administration was negotiating with many businesses to keep prices at the level they were at the end of November.

Many were skeptical.

"Prices always go up," said Adrian Portas, 51-year-old security guard who said he would curtail the amount of meat his family eats. "But our salaries do not."

Currency restrictions were implemented by former President Cristina Fernandez in 2011 in attempts to curtail capital flight. They were a major pillar of an economic policy that included subsidies, price controls and social works programmes for the poor.

But the measures were also deeply unpopular and led to a booming black market.

Macri frequently argued that the "cepo," or "clamp," hurt Argentina's competitiveness, scared away would-be investors and created distortions in the economy.

"The devaluation here happened a long time ago. Everything is very expensive, said Alicia Fernandez, a 58-year-old lawyer who says she frequently visits her adult children living in Florida. "In the United States, with US$100, you can fill up your shopping cart. Here, you can only get a few things."

- AP