Argentina is facing its worst economic crisis in 20 years as inflation reaches 138%

If you thought the cost of living crisis in the UK was dire, think about the citizens of Argentina, who are facing the country’s worst economic crisis in two decades.

Inflation in the South American country is at a staggering 138 percent, the highest in the G20 group of countries, and is a key factor in causing around two-fifths of the population to fall into poverty.

The economic collapse was at the heart of a volatile general election campaign. Today’s vote could hand Argentina’s presidency to a chainsaw-wielding ultra-libertarian who has promised to free the country from its quagmire by tearing up decades of centrist politics. Left political orthodoxy.

Polls now point to a victory for radical free market economist and former tantric sex guru Javier Milei over the ruling establishment.

To curb spiraling prices, the country’s beleaguered central bank raised interest rates from 118 percent to an astronomical 133 percent earlier this month to prevent further devaluation of the local currency, the peso, which recently hit a record low against the dollar. However, the bank is struggling with dangerously low foreign exchange reserves as it struggles to support the battered currency.

Crisis: The economic collapse was the focus of a volatile general election campaign

Argentina’s finance ministry borrowed £5.3 billion worth of Chinese renminbi from Beijing last week to calm feverish markets.

The move will worry observers already concerned about the growing reliance of many cash-strapped countries on Chinese loans.

Analysts do not expect the situation to improve any time soon. Investment bank JP Morgan expects inflation to be 210 percent by the end of the year. It has raised fears that Argentina could experience a repeat of “El Hiper,” or hyperinflation, that rocked the country in the late 1980s and caused price increases to average 2,600 percent by the end of the decade.

Economic crises in Argentina are nothing new.

The country has defaulted nine times since its independence from Spain in 1816. But today’s vote could transform the economic prospects of the country, which despite its problems has huge reserves of natural resources and is a major producer of agricultural products such as beef. Analysts have predicted the country could massively increase its oil and gas exports if Argentina’s strict controls on energy exports and prices are relaxed, allaying fears of a global supply shortage amid rising tensions in the Middle East.

Others have pointed out that the country’s large reserves of lithium, a key ingredient in making electric cars, could accelerate the global transition to green energy if used effectively. Milei, nicknamed “the wig” because of his 1970s hairstyle, has promised to shrink the Argentine state and dismantle the central bank.

He also called for replacing the peso with the U.S. dollar, which he said would curb inflation, and encouraged Argentines not to keep their savings in the local currency, calling them “pieces of trash” that are “not worth excrement.” could be”. ‘.

His stance has led to a run on dollars on Argentina’s black market exchanges, further increasing pressure on the local currency. If implemented, the policy will further establish the dollar as the world’s reserve currency, as a counterweight to China’s efforts to increase its influence in Latin America.

Other measures proposed by Milei include the privatization of state-owned companies and changes to labor regulations to make it easier for companies to lay off employees.

The leather-jacketed economist, who often wields a chainsaw at rallies to symbolize his austerity promises, has previously said the sale of human organs should be legal, suggested deregulation of the country’s arms market and questioned whether people are responsible for the effects Climate change is responsible.

“Argentinians face a choice between a shock therapy-style approach to tackling the country’s economic woes or more unorthodox policymaking as they go to the polls,” said Kimberleysperrfechter, emerging markets economist at research firm Capital Economics.

Radical: Javier Milei

Milei, a political outsider, shocked the Argentine establishment in August when he unexpectedly received the most support in a primary election.

Today he will face several opponents, the strongest of whom include Sergio Massa, the economy minister in the incumbent center-left government, and the opposition candidate in the center-right coalition, Patricia Bullrich.

For the past 16 years, Argentine politics has been dominated by the left-wing populist power couple Nestor and Cristina Fernandez de Kirchner, who still serves as the country’s vice president. While Milei remains the frontrunner, analysts believe he will not receive enough votes in today’s poll and instead predict there will be a runoff election in November.

“If Milei wins, Argentina will enter terra incognita.” [unknown land]said Christopher Sabatini, senior research fellow for Latin America at the Chatham House think tank. “Despite the fever for radical change, Argentina’s political and economic system has grown and thrived under a hothouse system of public-private economic and political cooperation, even collusion.”

“Whatever, win or lose, Milei remains in the popular imagination and politics of Argentina. “Get ready for a bumpy ride.”