If you thought the cost-of-living crisis in the UK was bad, spare a thought for the citizens of Argentina who are facing the country’s worst economic crisis in two decades.
Inflation in the South American state is running at an eye-popping 138 per cent, the highest in the G20 group of nations, a major factor in pushing around two-fifths of the population into poverty.
Economic collapse has been front and centre of a volatile general election campaign, with a vote today that could see Argentina’s presidency handed to a chainsaw-wielding ultra-libertarian who has promised to lift the country out of its quagmire by tearing up decades of centre-Left political orthodoxy.
Polls now indicate a victory for the radical free-market economist and ex-tantric sex guru Javier Milei over the ruling establishment.
In a bid to keep a lid on spiralling prices, the country’s beleaguered central bank hiked interest rates to an astronomical 133 per cent from 118 per cent earlier this month to prevent further devaluation of its national currency, the peso, which recently hit a record low against the dollar. But the bank is struggling with dangerously low levels of foreign currency reserves as it has battled to prop up the ailing currency.
Crisis: Economic collapse has been front and centre of a volatile general election campaign
Argentina’s treasury last week resorted to borrowing £5.3 billion worth of Chinese renminbi from Beijing to try and calm febrile markets.
The move will concern observers who are already worried about the growing dependence of many cash-strapped nations on Chinese loans.
Analysts do not predict the situation will improve any time soon. Investment bank JP Morgan expects inflation will be at 210 per cent by the end of the year. It has sparked fears Argentina could experience a repeat of ‘el hiper’, or hyperinflation, which rocked the country in the late 1980s and saw the rate of price rises hit an average of 2,600 per cent at the end of the decade.
Economic crises in Argentina are nothing new.
The country has defaulted on its debts nine times since it gained independence from Spain in 1816. But today’s vote could shift the economic outlook for the country, which despite its woes holds vast reserves of natural resources and is a major producer of agricultural products such as beef. Analysts have predicted that if Argentina’s strict controls on energy exports and prices are relaxed, the country could massively boost its oil and gas exports, alleviating fears of a global supply crunch amid mounting tensions in the Middle East.
Others have pointed out that the country’s large deposits of lithium, a key component in the manufacture of electric cars, could accelerate the global transition to green energy if they are exploited effectively. Milei, nicknamed ‘the Wig’ for his 1970s hairstyle, has pledged to shrink Argentina’s state and to dismantle the central bank.
He has also called for the peso to be replaced with the US dollar, which he argues will curb inflation, and encouraged Argentinians not to hold their savings in the national currency, calling it ‘pieces of trash’ that ‘can’t be worth excrement’.
His stance has caused a rush for dollars on Argentina’s black-market exchanges, piling further pressure on the national currency. Should the policy be implemented, it will further entrench the dollar as the world’s reserve currency, in a counterbalance to China’s efforts to increase its influence over Latin America.
Other policies floated by Milei include the privatisation of state companies as well as changes to labour rules to make it easier for firms to fire employees.
The leather-jacketed economist, who often brandishes a chainsaw at rallies to symbolise his cost-cutting pledges, has previously said the sale of human organs should be legal, proposed deregulation of the country’s gun market and questioned whether humans are responsible for the effects of climate change.
‘Argentines face the choice between a shock-therapy style approach to tackling the country’s economic issues or more of the same unorthodox policymaking when they head to the polls,’ said Kimberley Sperrfechter, emerging markets economist at research business Capital Economics.
Radical: Javier Milei
A political outsider, Milei shocked Argentina’s establishment in August when he unexpectedly garnered the most support in a primary election.
Today, he will once against face off against several opponents, the strongest of which include Sergio Massa, the economy minister of the incumbent centre-left government, and opposition right of centre coalition candidate Patricia Bullrich.
For the last 16 years Argentine politics has been dominated by the populist left-leaning power couple Nestor and Cristina Fernandez de Kirchner, who still serves as the country’s vice-president. While Milei remains the frontrunner, analysts do not expect him to receive enough votes in today’s poll and instead predict he will face a runoff election in November.
‘Should Milei win, Argentina will enter terra incognita [unknown land],’ according to Christopher Sabatini, senior research fellow for Latin America at think-tank Chatham House. ‘Despite the fever for radical change, Argentina’s political and economic system has grown and thrived under a hot-house system of public-private economic and political cooperation, even collusion.
‘Either way, win or lose, Milei is in Argentina’s popular imagination and politics to stay. Get ready for a bumpy ride.’
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