Bloomberg news reported that Argentina’s new President, Javier Milei, has promised to inflict “shock therapy” on the nation in an effort to fix its beleaguered economy, which has been afflicted with one of the world’s fastest inflation rates, as it faces a looming recession.
After beating the nation’s Economy Minister, Sergio Massa, in the runoff election on Sunday, Milei promised that he would employ radical measures to save the Argentine economy, including eliminating the nation’s central bank, transitioning from the peso to the US dollar, and cutting government spending.
However, looming on the horizon is a $44 billion debt which Argentina owes to international bond holders and the International Monetary Fund which will come due next year. In an effort to cover the debt, the nation will require what Martin Castellano, head of Latin America research at the Institute of International Finance has referred to as “a big current account surplus amid a stabilization plan.”
This would seem an enormous challenge for Milei, a 53-year old former TV pundit and one-time legislator who lacks executive experience, especially given the state is basically bereft of funding, as it faces an annual inflation rate approaching 150%.
Although he was known for wielding a chainsaw at campaign events to symbolize his planned cuts to the government, he has stopped displaying it of late in an effort to appear more moderate.
Adriana Dupita, Bloomberg’s Latin America economist said, “Milei’s ambitious vision of a market-friendly, small-state, dollarized Argentina will finally be put to test. He has yet to clarify on timing and process for dollarization — which, with negative reserves, doesn’t seem feasible for the near term.”
Milei’s extreme strategy, which appealed to voters who were suffering under the nation’s abysmal economic conditions, has frightened many economists, who say his “shock therapy sets Argentina on a path of deep uncertainty.” The note that given the nation’s international reserves are depleted, looking to dollarize its $622 billion economy could set off another round of hyper inflation.
