Economist: Argentina’s new president faces serious economic crisis

The Economist reported that Argentina’s new president Javier Milly He has faced a far more difficult economic situation than any other president in recent years.

She added that many people voted for Milley, who describes himself as an “anarcho-capitalist”, not because of his “inflammatory rhetoric” but because of the desperate situation he was trapped in.

The newspaper reported that the situation in Argentina is dire, with annual inflation currently exceeding 140% and expected to reach 200% early next year, with four out of 10 Argentines living in poverty.

The newspaper reported that Argentina’s public debt accounts for 90% of GDP, while the fiscal deficit reaches about 10% of GDP.

The newspaper explained that the dollar bonds are trading at less than 33% of their nominal value, noting that the country owes the IMF $44 billion, while its foreign exchange reserves are about $10 billion, putting it in the red zone.

The newspaper noted that Argentina has at least 15 different exchange rates, explaining that the official rate reaches 354 pesos per dollar, while the black market rate is 900 pesos.

emergency procedures

According to the newspaper, Milley’s government will have to take three emergency economic measures.

• First, rapid austerity to reduce the fiscal deficit, with pensions and fuel subsidies an obvious target area.
• Second, liberalize the exchange rate system, although this will lead to currency devaluation and stimulate inflation. This is inevitable because Argentina no longer has many dollars.
• The country needs to restructure its debt, reducing it to sustainable levels, which could require the IMF to admit losses or impose low interest rates on its loans to Argentina, one of the biggest mistakes in the fund’s history, according to the newspaper reported.

dollarization war

The newspaper also reviewed Milley’s dollarization policy, noting that when a country’s financial credibility deteriorates, it may be logical to adopt the U.S. dollar instead of its national currency.

She pointed out that in addition to the United States, eight countries have adopted the U.S. dollar as legal tender, including Ecuador and Panama, but said this step would require sufficient time for the detailed preparations required, as well as an initial large float of the U.S. dollar. to support the banking system.

Agence France-Presse reported that Javier Milley announced that it may take 18 to 24 months to control inflation in the country.

Milley said in a radio interview that “if we reduce currency issuance today, the process will take 18 to 24 months” to “return to international minimum levels.”

But Milley stressed that he did not intend to immediately lift exchange controls because it would lead to “hyperinflation.”

The president-elect reiterated his desire to eventually abolish Argentina’s central bank, accusing it of “stealing” from citizens.

He added, “Dollarization will be the way to achieve this. The currency will be the currency of Argentinians’ free choice. Essentially dollarization, to get rid of the central bank.”

The president-elect did not set a specific date for the expected “dollarization” of the country’s economy.

Privatization

Milley stressed in the radio interview that his plans to privatize many public sector agencies would be wide-ranging and “everything that might be in the hands of the private sector will become so”.

Agence France-Presse said the president-elect’s desire to reduce public spending has raised concerns about the social impact of privatization, as 40% of the country’s population lives below the poverty line and 51% receive some form of social assistance or support. .

But Milley stressed that privatization would not affect the education and health sectors.