No government could foresee that a global pandemic would force it to spend what it did not have.
From respirators to vaccines, there were unpredictable and, in many cases, unpayable expenses.
Some governments burned reserves and others had to issue money without backing.
Neither could anyone have imagined that the Russian-Ukrainian conflict over Donbass, Lugansk and Donetsk would lead to a war between Russia and NATO.
That war caused a significant energy shortage, which triggered fuel and electricity prices, forcing several countries to subsidize industry and homes.
The inflation caused by the pandemic and the war became global: stable economies suffered unexpected increases: Belgium went from 04 percent in 2020 to 10.35 percent in 2022. Sweden: from 0.5 to 12.3.
The United Kingdom: from 0.8 to 10.5 The United States reached 9.1 percent: a value it had not reached since the 1980s, when OPEC had cut oil production.
Americans suffer from a loss of purchasing power.
Gasoline, for example, increased 59.9 percent in one year.
In Europe, you receive 20 percent less Russian gas than you received before the war.
Wholesale electricity and gas prices have increased 15-fold since the beginning of 2021. In underdeveloped countries, the rising cost of living can be devastating.
The cost of food in the world reached, last year, levels never known.
The International Labor Organization maintains that global inflation is already leading, almost everywhere in the world, to sharp falls in wages.
And the Director-General of the organization, Gilbert F. Houngbo, has issued a warning: the weakening of purchasing power in low-income sectors —which would increase inequality and poverty— could provoke civil rebellions in various places.
The continuation of inflation is discouraging and, at the same time, stimulating: if 20 percent of the countries can contain inflation, it means that we must not resign ourselves to suffering it.
In each country, it is necessary to manage them efficiently, revealing the local causes capable of boosting or counteracting world inflation.
And leaving aside the ideologies.
The policies of the countries that have dominated inflation are not related to a single system of government: there are democracies and dictatorships among such countries.
Nor does the same economic doctrine unite them.
There are neoliberals, socialists and populists.
Here is a list of the ten countries probably most successful in fighting inflation (2022): Hong Kong 1.2 Bolivia 1.41 Seychelles 2.1 China 2.1 Saudi Arabia 2.2 Oman 2.4 Vietnam 2, 86 Switzerland 2.9 Ecuador 3.38 Taiwan 3.39
The same is true of the countries with the highest inflation.
They don't all follow the same system.
Here is a list of the ten countries that have probably had the most difficulty controlling inflation (2022): Venezuela 1,198.0 Sudan 340.0 Lebanon 201.0 Syria 139.0 Suriname 63.3 Zimbabwe 60.7 Argentina 51.2 Iran 35.2 Ethiopia 33.0
(Other tables may differ from the ones we have just seen. The rankings vary according to the dates in which they are constructed and the method used so that the data from the different countries, which are heterogeneous, become comparable. However, the differences are limited: almost all the countries that appear in these tables, appear in any).
High inflation can slow economic development and lead to a financial crisis.
Stopping the process requires, above all, a systemic analysis of various factors: among others, the level of reserves, international economic relations, the productive structure, the degree of investment, the rate of productivity, working capital and intangible assets.
The tools to use in an anti-inflation policy are monetary and fiscal.
Without prejudices or rigidities.
But a contradiction remains to be resolved: any anti-inflationary strategy implies reducing demand;
that is, that people lose, even temporarily, part of their purchasing power.
This cut may be beneficial in the long run (“hunger for today, bread for tomorrow”), but added to the hardships already caused by inflation, it can provoke anger and social rebellion, which undermines the success of any strategy.
Fine and complex policy is needed to stabilize the currency without creating more poverty.
That forces you to juggle public spending, taxes, incentives, interest rates and credit.
And do them as soon as possible.
Anti-inflationary plans lose effectiveness over time and even become counterproductive.
Some countries have resorted to shock policies:
- Currency board: only money backed by external assets can be issued.
- The value of the national currency is equal to that of the dollar, the euro or gold.
- Partial dollarization: it is allowed to use both the national currency and the dollar.
- Total dollarization: the national currency disappears, replaced by the dollar.
These extreme measures are capable of ending inflation in a very short time, but their continuity can cause recession and unemployment: they restrict the possibilities of exporting and flood the domestic market with foreign products.
Whether progressive or shock, an anti-inflation plan requires exceptional expertise in government economists and strong political power.
Rodolfo Terragno is a politician, diplomat and journalist.
