BUENOS AIRES.- The Economist Javier Miley will assume the presidency of Argentina next Sunday with a heavy legacy resulting from years of economic mismanagement that has led the country to have one of the highest inflation rates in the world (161.6% year-on-year in November) while poverty reaches 40% of the population .
Milei stated that ending inflation will take between 18 and 24 months. To do this, she proposes closing the Central Bank, which she accuses of issuing pesos without restraint, and an eventual dollarization of the economy, an implementation about which she has not given many details.
In September, monthly inflation was 12.7%, the highest recorded since February 1991, according to a historical report from the Central Bank. It was the second consecutive month with double digits.
In October there was a slowdown and it stood at 8.3%. However, in the year-on-year comparison the increase in prices was 142.7%, while the accumulated increase for the year is 120%.
“The new president of Argentina, the self-proclaimed anarcho-capitalist Javier Miley, faces one of the most difficult economic challenges in the world on Sunday. The country is a major food exporter and used to be one of the richest nations in the developing world, but decades of mismanagement have wrecked the economy and created a web of artificial price and exchange rate controls that have produced huge distortions. , indicated the editor of the British media Financial Times, Michael Stott, reported Infobae.
Milei faces the risk that the country’s economy will fall into hyperinflation; Given this, he promised to apply strict fiscal discipline and the closure of the Central Bank. In turn, one of his most controversial campaign promises was to dollarize the economy, although he has a great obstacle to this and that is that Argentina’s net international reserves are negative (-10 billion dollars, according to private calculations).
The libertarian has said that he will apply a drastic adjustment, cutting public spending by reducing the size of the State, eliminating subsidies for public services, as well as ending state investment in public works.
The British media pointed out that “the root of Argentina’s problems is the government’s chronic overspending. The size of the state has almost doubled in the last two decades, with the government expanding the public sector payroll, distributing large subsidies to fuels and electricity and promoting social assistance programs”.
Meanwhile, “employment in the public sector increased by 34% between 2011 and 2022, while jobs in the private sector increased by only 3% in the same period, according to a report by the IERAL think tank. This has led to continued budget deficits of more than 4% of gross domestic product, despite tax levels being well above the Latin American average,” the Financial Times noted.
Another of Milei’s challenges according to the British media is that Argentina is deprived of loans in international markets “since its ninth default in 2020.” For this reason, the “Peronist government has resorted to issuing money” to finance the deficit. This caused the money supply to skyrocket and the peso to lose value.
In addition, exchange controls caused a black market in the dollar, while exporters hoarded merchandise so as not to liquidate it at the “artificially low” official exchange rate. This caused Argentine international reserves to be negative.
The forecasts are not positive. Well, the problem is not limited to the debt with the IMF. In 2024, the country must face debt commitments in Argentine currency for the equivalent of $90,000 million; another $20,000 million to multilateral organizations, as well as debts with importers for one $30,000 million.
Source: EDITORIAL / With information from Infobae
