Argentina’s next president Milei must tame inflation, turn around economy

BUENOS AIRES, Nov 20 (Reuters) – Argentina’s libertarian President-elect Javier Milei has won a closely fought election. Now comes the hard part: dealing with economic crises.

Inflation is at 143%, net reserves of foreign currency are deep in the red, savers are ditching the peso, and a recession is looming – if not already here. Four in 10 Argentines live in poverty and a sharp peso devaluation is likely.

Milei, who is pledging economic shock therapy such as shutting the central bank and dollarization, won a second-round runoff vote on Sunday with some 56% to rival Sergio Massa’s 44%.

Milei now faces the huge challenge of turning around the economy once he takes office on Dec. 10. Failure could lead to the already embattled country suffering a tenth sovereign debt default, poverty climbing and possible social unrest.

“It is an economy that is in intensive care,” said Miguel Kiguel, a former undersecretary of finance at the Economy Ministry in the 1990s.


Argentina’s high inflation rate creates huge distortions in markets and for consumers, with prices changing weekly. A central bank poll of analysts forecast 185% inflation by the end of the year.

“One of the biggest challenges of the next administration will be to correct the distortion of relative prices that the economy has today,” said Lucio Garay Mendez, economist at consulting firm EcoGo.

“In a context of high inflation and a stabilization plan, a correction is inevitable.”

In a bid to tamp down inflation Argentina’s central bank has hiked the benchmark interest rate to 133%, which encourages saving in pesos, but hurts access to credit and economic growth.

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Argentina’s peso currency has been shackled by capital controls since a market crash in 2019, which has led to an unwieldy array of exchange rates, where dollars trade for well over twice the price of the official level near 350 per dollar.

Popular unofficial exchange rates include the “blue” dollar, the MEP, and blue-chip swap, though demand for dollars through parallel channels has over time spawned dozens of different rates including a “Coldplay dollar” and “Malbec dollar.”

Argentine president-elect Javier Milei greets supporters after winning Argentina’s runoff presidential election, in Buenos Aires, Argentina November 19, 2023. REUTERS/Cristina Sille/ File Photo Acquire Licensing Rights

Milei has pledged to quickly undo capital controls and eventually dollarize the economy, while a sharp devaluation is likely in the near future to bring the official and parallel rates closer together.

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Argentina’s central bank reserves of foreign currency are near their lowest level since 2006, and in net terms are widely seen by analysts to be in negative territory after a major drought hit exports of key cash crops like soy, corn, and wheat.

The low reserves threaten the country’s ability to repay debts to major creditor the International Monetary Fund (IMF) and private bondholders, as well as cover key imports. Argentina will need to revamp its creaking $44 billion IMF program.

The government has agreed on an extended currency swap with China to…

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