Argentina’s next president must tame inflation

BUENOS AIRES — Argentina’s libertarian Presidentelect Javier Milei has won a closely fought election. Now comes the hard part: dealing with economic crises.

Inflation is at 143 per cent, 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 secondround runoff vote on Sunday with some 56 per cent to rival Sergio Massa’s 44 per cent.

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 10th 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.

INFLATION

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 per cent 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 per cent, which encourages saving in pesos, but hurts access to credit and economic growth.

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.