Editor’s note: This article was published in its original Italian prior to Milei’s election. We have not modified the translation.
The economic situation has been one of the hot topics of the electoral debate in Argentina. Javier Milei brought a very high degree of confrontation to the campaign and his economic prescriptions are scaring the country. Several movements are trying to avoid a victory for the ultra-neoliberal climate denier while the Peronist world is organizing to bring Sergio Massa to the presidency. To understand the economic situation, we interviewed Julia Strada just before the runoff vote, a doctor in economic development, director of Banco Nación (the country’s main financial institution) and the Centro de Economía Política Argentina (CEPA), and a deputy from the Peronist Union Por La Patria.
How would you describe the country’s economic situation?
From a macroeconomic perspective, we can say that the situation in the financial realm is certainly complicated, starting with the value of the dollar, which has risen rapidly in the last period. We have a challenge ahead of us that begins with the accumulation of dollars at the Central Bank to pay the public debt. This is the main point regarding exchange rate stability. Secondly, there is a strong debate about the economic future of the country as a consequence of who will end up being the president of Argentina, so much so that in the days leading up to the first round there was a rush to withdraw money from the banks, creating some economic instability, combined with the fluctuations of the dollar, which I mentioned earlier – which has been slowly resolving itself after October 22, also thanks to the drop in the U.S. currency’s value and the resumption of deposits in pesos. Then there is the problem of inflation, which was at 12 percent in both August and September while in October it “dropped” to just over 8 percent.
How do you explain this wave of inflation?
There are two explanations, or two big issues: the first is monetary policy, which in the context of the scarcity of dollars means that there is no possibility of having a stable exchange rate, which is leading to the rise in the prices of a number of products in Argentina, basically foodstuffs. It’s not only a matter of the type of exchange, but also of the variable exchange rate. The second issue is that of how products are produced and marketed, because we are suffering from a very significant concentration pattern where there are very few actors that determine the value and the variation of the market basket. This will certainly be an issue that needs to be addressed for the future of the country. And we absolutely cannot forget the agreement with the International Monetary Fund: this is an agreement that throws gasoline on the fire on some of these issues, such as the imposition of exchange models or tariffs; the growth of the value of the dollar has a similar effect, with all the consequences it’s having on our economy, starting with the value of the debt. All of these make up the cause of inflation in Argentina.
What about Milei’s dollarization proposal?
There are not enough dollars to do what Milei is saying. It’s not feasible. If Milei wins the election, the dollar will no longer have a “ceiling,” and that can only lead to price growth, as I explained earlier. It would be an ultra-inflation that would collapse the value of pesos and which, according to Milei, would be the step leading up to the dollarization of Argentina. The project is associated with the idea of liquefying the pesos, average wages and the Central Bank’s liabilities. This would be a de facto general worsening of the macroeconomic situation, then leading to the dollarization of the country. We can say that the proposal alone is already doing damage, even before it can be put into practice.