This November 19 in Argentina it will be decided who is the new president of the country for the next four years. After a first round, this Sunday’s runoff is led by the ‘outsider’ Javier Milei and the current Minister of Economy, Sergio Massa. Whoever wins, the biggest challenge will be to rescue the country from a crisis marked by inflation that exceeds 142% and a poverty rate that is around 40%. We analyze some aspects of the economic situation in Argentina below.
The race for the Presidency in Argentina is about to come to an end. This November 19, Argentines will decide in a ballot their next head of state for the next four years. The electoral contest was framed by discussions about the future of the country’s economy – which has been in crisis for more than a decade – and what the next president will do to give peace of mind to the pockets of his voters.
Argentina is one of the world’s largest food suppliers, with large exports of soy, corn, wheat and beef. At the same time, it has one of the largest reserves of lithium for electric vehicles and great gas and oil potential.
Despite all that, the country is now experiencing a recurring crisis after having had one of the best economies in Latin America in the past. Now, the Southern Cone country has an interannual inflation of almost 143%, it is the largest debtor of the International Monetary Fund (IMF), with a credit of 44,000 million dollars, and the percentage of the population living in poverty is 40 %.
After a first round, on October 22, the two candidates competing for the Presidency are the Peronist and current Minister of Economy, Sergio Massa, who obtained 37% of the votes, and Javier Milei, who convinced 30% of voters and is the most controversial candidate.
Regardless of the winner, the population urges for a solution to the economic crisis, which has the Argentine peso in free fall.
What brought the Argentine economy into this crisis?
The fiscal deficit is one of the biggest problems for the country’s economy. This occurs when a country spends more money on its operation than it receives from taxes and other items. According to calculations by the Economic Research Institute of the Córdoba Stock Exchange – with information from the Ministry of Economy – the country has had a deficit in 13 of the last 16 years.
However, another problem for Argentina has been the printing of banknotes by the Central Bank to address the lack of liquidity. However, that response has brought more problems: increased inflation and devaluation of the local currency; which complicates the payment of debts abroad, such as the one currently owed to the IMF.
Another drawback is the lack of continuity of economic policies between governments. During recent years, the heads of state have not followed the economic route designed for the country by each predecessor. This instability translates into the lack of confidence of international investors in the Argentine market. At the same time, the country has failed to pay its debt to actors such as the IMF, which triggered a lack of confidence in the international lending sector and more and more financial institutions closed the door to Argentina.
Although the nation was emerging as an economic power on a global scale, that did not happen because the country never completely made the leap from the agricultural industry to that of goods and services. Exports of raw materials, such as those mentioned above, represent almost 40% of the country’s total exports, according to the Rosario Stock Exchange.
What do the candidates propose?
The controversial far-right candidate Javier Milei has proposed drastically lowering public spending, reducing taxes, simplifying the country’s tax system, allowing the privatization of companies to remove them from the hands of the State, opening the economy and closing the Central Bank, to According to him, stop the monetary issue and inflation.
In addition, he has supported the sale of organs, a proposal that, in his opinion, can constitute another “market.”
And one cannot talk about candidate Milei without mentioning dollarization, his most ambitious proposal, but one that raises many doubts. In Latin America, the only countries that have taken this path have been Ecuador and El Salvador, while Panama uses both its national currency (for minor transactions) and the dollar (for large economic movements).
Jorge González Izquierdo, emeritus professor of Economics at the Universidad del Pacífico in Peru, considers that to dollarize an economy, a country must “buy all the currency that is in circulation and deliver dollars.” For this to be possible, “it is essential that a country has a very wide back in international reserves,” according to González. Thus, the dollar as Argentina’s national currency could be a double-edged sword.
For his part, the Peronist Sergio Massa, the country’s current Minister of Economy, proposes the implementation of a digital currency in the country, increasing the sentence for tax crimes, reducing taxes on small and medium-sized businesses and boosting the country’s exports. In turn, he believes that Argentina should “sell energy to the world” to strengthen its economy.
An unfinished business
The Argentine candidates have a puzzle to solve: what to do with state energy subsidies that are around $12 billion? This measure keeps energy consumption prices at a minimum for two thirds of the population.
The subsidies keep energy bills below 15% of the normal price, and their future will play a fundamental role in this Sunday’s elections.
Milei has said it will cut all subsidies, although it acknowledges it had to do so slowly. In contrast, Massa assures that he will keep low prices in energy billing, even though he needs to cut state spending to meet one of his most ambitious objectives due to the country’s economic crisis: eliminate the enormous fiscal deficit.
According to the latest Central Bank survey, inflation is heading towards 185% by the end of this year, which has already unleashed discontent and anger in the streets due to the constant increase in prices. Thus, subsidies are presented as an incentive.
However, this country of 45 million inhabitants still has a large fiscal deficit, which forces whoever takes office on December 10 to put its finances in order.
With Reuters, AFP and local media
#economy #urgent #issue #Government #Argentina