Scarcity of Goods Sows Frustration Among Argentines
As Vote Nears, Price Controls Questioned

By Monte Reel
Washington Post Foreign Service
Friday, June 22, 2007

BUENOS AIRES -- At the height of rush hour, Luis Ibáñez parked his taxi in the middle of the busiest intersection of this city, got out of the car and stood cross-armed in the street as traffic jammed around him.

Dozens of other cabdrivers joined him Friday, protesting a national shortage of compressed natural gas -- the primary fuel for the vast majority of taxis here. As winter approached in the Southern Hemisphere, the Argentine government cut natural gas supplies to service stations and industrial users last week. It was a temporary measure to ensure that there would be sufficient fuel available to heat Argentine homes over the weekend.

Falling temperatures have exposed weak points in an Argentine economy that boasts 9 percent annual growth, lowered unemployment and rising salaries. In addition to the shortage of natural gas, Argentina recently has faced shortages of some agricultural goods, including milk and other dairy products. Now, many economists -- and a growing number of people in the streets -- are questioning the inflation-control policies of President Néstor Kirchner.

"How can a government not be prepared for the cold?" asked Ibáñez, while city buses and commuter vehicles idled around him. "They never prepare for anything, they don't invest in the country, and the people need to know that there are consequences."

With a presidential election set for October, tensions between market forces and the political pressure to keep consumer prices low have become impossible to miss -- even without the spotlight of rush-hour protests.

"It's hard to find milk on the shelves now, and that affects everyone," Maria Laura Gonzales, 30, said after shopping at a Buenos Aires market this week.

Gonzales blames dairy companies for the milk shortage. Government officials blame a recent drought. But dairy producers and many economists say government-imposed price caps have compounded the problem by sapping corporate incentive to invest in production.

Such price controls are also taking much of the blame for the recent energy problems. Twice in the past three weeks, more than 700 service stations around Buenos Aires were ordered to stop pumping compressed gas. Analysts say the cuts were a result of pricing controls instituted in 2002 that have encouraged consumption and discouraged industry investment in infrastructure improvements needed to boost production.

Periodic energy shortages are common in many countries at peak times of the year, but Argentina's came at the year's first cold spell, before winter officially began. The country has already cut natural gas exports to keep more gas at home -- a strategy that Kirchner has periodically employed since 2004, when he angered neighboring Chile by violating a contract promising exports. Even so, production continues to lag behind demand.

Some economists warn that the valuable economic gains the Kirchner government has achieved in recent years could erode significantly if industries continue to endure costly power cuts.

"In the energy sector -- because investments take so long to be completed -- long-term planning is needed," said Sophie Aldebert, a South American analyst for Cambridge Energy Research Associates in Rio de Janeiro. "But in Argentina there is no long-term plan for energy, and they don't have the regulatory stability to attract the investment that's needed."

The lag time between recently proposed fixes and their implementation means that the situation in Argentina could get worse. As demand consistently grows in Buenos Aires, where more than one-third of the country's population resides, it gets progressively harder for the gas industry to pipe sufficient supplies to the city via an outdated delivery system.

Next winter could be even more vexing than this one, analysts predict, because new pipelines and production plants that the government has promised will still be awaiting completion.

But with an election coming up, no politicians are rushing to propose stripping the controls and letting prices float up to market levels. Instead of perceiving that something might be amiss when searching for milk or when waiting for a taxi, Argentines would feel it acutely when it came time to pay. This year, consumer rates for natural gas in Buenos Aires are less than half of what they are in neighboring Brazil, for example. And though the price of powdered milk rose 0.1 percent in Argentina in the first quarter of 2007, it jumped 33 percent internationally.

Though it is only four months away, the Argentine presidential election has not begun in earnest yet. Kirchner has not announced whether he will be his party's candidate or whether his wife, Cristina Fernández, will take his place on the ticket. Early polls have suggested that either would defeat the main opposition challenger, former economy minister Roberto Lavagna, though the president would prevail by a wider margin than the first lady would.

"Time plays in President Kirchner's favor," said Federico Thomsen, a political and economic analyst in Buenos Aires. "The shortages have become more noticeable to the layperson now, but so far no opposition candidate has been able to capitalize on that. So for it to really have an effect on Kirchner or his wife, something extreme would have to happen between now and then."

Though the government has defended the price caps as important protections for consumers who were badly burned by a devastating 2001 economic collapse, some officials in the Kirchner administration have suggested that the controls might be loosened after the election. However, given recent turmoil involving the country's statistical bureau and the way it measures inflation, some observers question whether the government is prepared to confront significant price increases.

Officially, inflation is expected to be less than 10 percent this year, though the official figures are widely disputed. After announcing a 3.6 percent increase in the consumer price index in March, the country's statistics bureau revised its estimate a few days later to indicate an overall decrease of 0.2 percent. Since then, employees of the bureau have held strikes to protest alleged manipulation of the numbers. Private economists generally estimate inflation to be 14 or 15 percent.

"It's a crazy situation," Thomsen said. "There really is no official inflation number that anyone uses anymore."

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