Argentina’s Worst Kept Secret
(The Big Mac Index – Part two)
Good luck ordering a Big Mac in Argentina. It is really hard to find it on the menu board, there is no picture anywhere, but you can order one – and you’ll notice that, compared to other items on the menu, it is cheap! A whopping 30% cheaper than other comparable items on the menu. Why you ask.
It appears that Argentina’s current government is notorious for demanding companies to fix certain prices to keep the official inflation rate down. The well-known Big Mac index published annually is a worldwide inflation indicator and an easy, fun way to analyze ‘purchasing power parity.’ When The Economist noticed a particularity in the price of Big Macs in Argentina, it raised some flags. Could there be some number fudging going on? Could burgernomics be predicting whether governments are understating inflation?
The Economist has called Argentina out in the past for manipulating the price of the Big Mac at all of their McDonald locations, however, the Argentine government has not commented on the Big Mac Index controversy. Further, the government insists that the inflation rate is considerably lower than financial experts report.
Recently, Argentina defaulted yet again on its debt. This last default marks the eighth time in history for default by this country. Interestingly, it just so happens that the source of this current default for Argentina is the previous default in 2001. Most of the creditors exchanged their defaulted debt for new securities in a restructuring plan that took place in 2005 and again in 2010. However, a few creditors insisted on payment in full plus interest. Most economists and financial analysts agree, defaulting was the worst decision the Argentine government could have made.
At least, in the end, the people of Argentina can still eat, and rather cheaply if they order the Big Mac!