We’ll start with the easy straight forward answer.

The simple idea is that if meat is too expensive people will eat chicken or fish, or why not even vegetables.

But the real problem lies somewhere else.

The inflation index is a weighted average of certain products and services. Meat is the single product with the highest weight of all (4.5%). So changes in the price of meat will affect the inflation index.

The increase in export of meat drove the price upwards, threatening to bring back the inflationary days. If all the meat is exported, the internal market prices go up. Simple logic.

When the prices of meat go up, the inflation index goes up, and when the inflation index goes up it is read as a general movement of prices, and not as a change in the relative prices of different products.

This will in turn generate inflationary expectations, which in turn will create inflationary pressure. Union will want increases in salaries to compensate for the inflation, corporations will increase prices, so on and so forth.

Throughout Argentine history, inflation has been a big problem that even brought down governments (i.e. Alfonsin 1989).  So it’s only logical that inflation is seen as a huge risk not only for the economy and it’s overall recovery, but also for the government.

So that explains why they want to stop inflation. But aren’t there other means to stop it?

Yes there are, but limited. Argentina is a country that has really high unemployment rates (over 10% for more than 10 years), that is far for the full utilization of it’s resources human, natural even industrial. Local interest rates are already high when compared to other countries (with some exceptions) and to increase them to cool down the economy might not be a good idea. It is the standard recipe of the IMF, which in general has not worked and is not applied in developed economies.

Another possibility would be to modify the weight meat has on the inflation index, if the consumption of meat is expected to be lower, the weight could be lower. And honestly we have no idea why this is not considered by the government.

So they are left, or they perceive to be left with the only alternative of lowering the price of meat, as a way to fight the overall inflation and the way to do that is to force the increase of stock destined for internal consumption.

Would this affect other industries?

Not directly. It is very unlikely that the same rout (to stop exports) will be used for other industries. As unbelievable as it might sound, given the current situation with meat, the government is trying to increase exports overall and the presence of Argentine products in the world.

But it affects every sector indirectly in two ways.

On one hand it shown the total lack on knowledge of the way international commerce works, and the problems Argentine producers face when trying to enter foreign markets.

One of the hardest problems facing companies when trying to export is credibility. Buyers want to know they can rely on the supplier in terms of quality, quantity timely delivery etc. So when buyers of meat are left with no suppliers because of a government action, they will think very carefully before dealing with that country again. And that sentiment can and will translate into other sectors.

So it will be harder for companies in every area of the economy to find buyers willing to take the “Argentine” risk.

The other and most important way in which this affects other sectors, is by showing that Argentina is still eminently an undeveloped country.

Clearly Argentina still sees laws and regulations as mere problems on the way, that can be constantly modified to accommodate to specific circumstances.

Laws and regulation should be the backbone of a society, it should represent it’s set of values and the way in which a society should work.

Yet, in Argentina, and most of the undeveloped world (and we think is one of the characteristics of undeveloped countries), always finds a good enough excuse to modify uncomfortable rules, there is always a good enough excuse to break or ignore a rule or a law. This happens at every level of society.

And when that is the case, there is very little that can be certain, there are no clear rules.

Governments should realize that the worst thing for a country is drastic change, is to go two steps forward and three steps back constantly.

The country should realize what laws and rules are, and accept to deal with them, even in crisis, emergencies or any other excuse that might be used to try to go around them.

How does that translate into actions for businesses working with undeveloped countries? (Not only Argentina)

Well, it is very important to keep an eye on political events, on the general economy of the country, and expect the unexpected.