Pierre Salama

The Difficult Road of Rising and Falling Inflation in Latin America

ABSTRACT The article analyzes problems stemming from inflation and/or the recessions which have affected Latin American countries, namely Argentina and Mexico. It challenges the ambiguous use of the concepts of “high inflation” and “inertial inflation” to characterize the rises in prices in some of these countries, and proposes the additional qualification of “rampant hyperinflation.” Vie transition from the latter to open hyperinflation is seen as linked to sharp falls in productive investments, increases in redistributive conflicts among social groups, inflationary expectations, the lack of credibility of economic policies, and the dollarization phenomenon. The article proposes monetary and/or financial solutions to ending hyperinflationary processes, but also stresses the role of social inequalities and exclusion in this matter.

Neutralizing tendency of wages to grow below productivity rate

The apparent stability on relative shares in revenue during the 2000s, or even the increase increase in wages share in Latin-American countries, seems to be a “surprise” in Kaldor’s opinion, or even a “mystery” for Schumpeter, or well finally “a reproach to economic theory” according to Robinson. Various theories trying to explain sharing of value added insist on investment relative size, saving importance, different types of technical progress (biased or not), amount of idle capacity, cost structure, intermediate products importance, higher markup rates searching by entrepreneurs and, consecutively, on distributive conflict. We will analyze main macroeconomic models — those of Kaldor, Robinson and Kalecki — in order to overtake that “reproach to economic theory”.

Development and inequalities

The rise in wages inequalities, whatever may be the level of development reached, is linked to the modernization of countries, a modernization percieved as a con‐ straint in an ever more globalised world. This tendency is sometimes thwarted by sustained education policies and by restrictive government policies aiming at raising low wages. But as a tendency, it is stronger when countries increase their opening rate and modify the exports structures toward ever more sophisticated products. One can however see how much it is artificial to separate technology from exports in order to measure their respective weight on the rise of inequalities.

Economic Growth and Inflation in Argentina under Kirchner’s Government

Since 2003, the growth rate of the GDP has been higher in Argentina than in Brazil. Argentina re-established sustained industrialisation, while in Brazil the trend is towards deindustrialisation. Investment rates grew, but not enough, and pressures on production capacity remain high. Income distribution is less unequal. Poverty has decreased, its depth has strongly declined, and inequalities among the poor have also declined. Employment is growing – including in the industrial sector; informal jobs, whether salaried or not, are loosing ground; while the balance of trade shows a strong surplus and the dept ratio is not overly high. Real inflation is high, far higher than announced by the government, and it curtails any rise in buying power, particularly among the poorest. Distributional conflicts between farmers and government, between wage earners and managers, illustrate both governance problems and questions of societal options. The recent rise in effective exchange rates, the rise in the share of raw materials in exports, the fact that these are needed for subsidies paid mainly to energy consuming sectors, the shortage of subsidies to research intensive industries could tomorrow turn what is currently a virtuous circle into a vicious circle.