Argentina is set to announce new emergency measures, including a significant increase in interest rates to 97%, in an attempt to address the country’s severe economic crisis. The government aims to avoid a major devaluation of the peso ahead of the October elections, but it is facing dwindling foreign exchange reserves as citizens turn to the US dollar. High inflation, reaching 109% annually in April, has further compounded the challenges. The new measures will involve increased intervention by the central bank in the foreign exchange market to stabilise the peso.
The IMF to the Rescue?
Economy Minister Sergio Massa is seeking support from the International Monetary Fund (IMF) to expedite loan disbursements. He plans to visit China to explore the use of the renminbi in foreign trade. Argentina recently activated a currency swap with China, allowing it to pay over $1 billion of imports in renminbi. The IMF has already shown flexibility towards Argentina by adjusting reserve targets and money-printing reduction goals to support the country’s $44 billion loan program. However, the IMF is unlikely to bring forward disbursements close to the crucial upcoming election, which the government is expected to lose.
To combat inflation, Massa intends to allow zero-tariff importation of food, a significant departure from Argentina’s role as a major grain exporter. The government also plans to lower interest rates on a state-run program that enables Argentines to purchase domestically made products on credit, with the aim of boosting national industry.
The Shaky Future
Critics argue that the latest measures do not represent a change in policy but rather a reaffirmation of interventionist strategies that have failed to curb inflation or stimulate economic growth. Rising interest rates are also increasing the cost of servicing Argentina’s significant domestic debt. Economists contend that the government’s foreign exchange and price controls have created distortions, deterred investment, and hampered production. Many predict that Argentina will enter a recession this year, with Oxford Economics forecasting a 1.6% contraction in GDP, making it the weakest outlook among major Latin American economies.
Amid internal political conflicts, Economy Minister Massa is seen as one of the few remaining options within the Peronist movement as a potential presidential candidate for the upcoming elections. However, his economic plan’s success over the next few months will heavily influence his chances. On the opposition side, there is still no consensus on a presidential candidate, with support divided between centrist Horacio Rodríguez Larreta and conservative Patricia Bullrich. A far-right candidate, Javier Milei, has gained popularity and could potentially reach a second-round run-off if his support expands beyond greater Buenos Aires. Milei advocates for radical anti-establishment measures such as abolishing the central bank and dollarising the economy.