New Argentine President Must Deal with Inflation, Weak Economy
2023-11-21
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1Libertarian Party politician Javier Milei has won Argentina's presidential election with 56 percent of the vote.
2Now President-elect Milei must face the South American country's economic problems.
3Inflation has been measured at over 140 percent.
4The country lacks foreign currency for international trade, people who aim to save are selling the Argentine Peso, and a recession appears likely.
5About 40 percent of Argentines live in poverty.
6Milei is promising to close Argentina's central bank.
7He also supports dollarization.
8Dollarization means Argentina would stop using its peso and instead use the U.S. dollar for money.
9Milei won a second-round of voting on Sunday with about 56 percent against opponent Sergio Massa's 44 percent.
10Now he will try to turn around the economy once he takes office on December 10.
11Failure could lead to the country's tenth debt default, increased poverty, and possible social unrest.
12Argentina's high inflation rate creates huge problems in its markets and for consumers.
13Prices change weekly. Economic experts predict a yearly rate of 185 percent inflation by the end of the year.
14To reduce inflation, Argentina's central bank has increased the interest rate to 133 percent, which pushes people to save Argentine pesos.
15However, this move makes it too costly to borrow money and hurts economic growth.
16Capital controls have harmed the value of Argentina's peso since a stock market crash there in 2019.
17However, different exchange rates for currencies of other nations have led to problems.
18For example, the U.S. dollar's official exchange rate is about 350 pesos per dollar,
19but news reports say it can trade for a far higher price under different controls.
20Milei has promised to quickly undo capital controls and to dollarize the country's economy.
21Argentina's central bank reserves of foreign currency are near their lowest level since 2006.
22A major drought affected the exports of important crops like soy, corn, and wheat, which used to bring in enough foreign exchange money.
23Low reserves threaten the country's ability to repay its debts to the International Monetary Fund (IMF) and private bondholders.
24It will also be difficult to pay for imported goods.
25The government has agreed on an extended currency swap with China to help enable it to carry out foreign trade.
26Argentina also had to delay some payments to important trade partners like neighboring Brazil.
27Argentina is Latin America's third-largest economy.
28But it is expected to shrink by two percent this year, the central bank predicted.
29The recession is partly being blamed on the drought that cut corn and soy crops in half.
30With very high inflation, poverty will likely increase as workers' pay and savings decrease.
31Argentina, rich in important grains, natural gas, and lithium, could see an increase next year as improved weather helps crops.
32A new gas pipeline will reduce dependence on costly imports, and demand is rising for the lithium needed for electric vehicle batteries.
33Soy and corn are expected to have stronger harvests, which will bring in much-needed foreign currency.
34Eugenio Marí is head economist at Libertad y Progreso Foundation.
35He said agriculture and oil and gas from rocks, called shale, can help the economy.
36The "harvest will help bring a greater flow of income in the economy, as will the greater production of (shale oil formation)," he said.
37I'm Dan Novak.
1Libertarian Party politician Javier Milei has won Argentina's presidential election with 56 percent of the vote. 2Now President-elect Milei must face the South American country's economic problems. 3Inflation has been measured at over 140 percent. The country lacks foreign currency for international trade, people who aim to save are selling the Argentine Peso, and a recession appears likely. About 40 percent of Argentines live in poverty. 4Milei is promising to close Argentina's central bank. He also supports dollarization. Dollarization means Argentina would stop using its peso and instead use the U.S. dollar for money. 5Milei won a second-round of voting on Sunday with about 56 percent against opponent Sergio Massa's 44 percent. 6Now he will try to turn around the economy once he takes office on December 10. Failure could lead to the country's tenth debt default, increased poverty, and possible social unrest. 7Inflation 8Argentina's high inflation rate creates huge problems in its markets and for consumers. Prices change weekly. Economic experts predict a yearly rate of 185 percent inflation by the end of the year. 9To reduce inflation, Argentina's central bank has increased the interest rate to 133 percent, which pushes people to save Argentine pesos. However, this move makes it too costly to borrow money and hurts economic growth. 10Peso controls 11Capital controls have harmed the value of Argentina's peso since a stock market crash there in 2019. However, different exchange rates for currencies of other nations have led to problems. For example, the U.S. dollar's official exchange rate is about 350 pesos per dollar, but news reports say it can trade for a far higher price under different controls. 12Milei has promised to quickly undo capital controls and to dollarize the country's economy. 13Central bank reserves 14Argentina's central bank reserves of foreign currency are near their lowest level since 2006. A major drought affected the exports of important crops like soy, corn, and wheat, which used to bring in enough foreign exchange money. 15Low reserves threaten the country's ability to repay its debts to the International Monetary Fund (IMF) and private bondholders. It will also be difficult to pay for imported goods. 16The government has agreed on an extended currency swap with China to help enable it to carry out foreign trade. Argentina also had to delay some payments to important trade partners like neighboring Brazil. 17Recession 18Argentina is Latin America's third-largest economy. But it is expected to shrink by two percent this year, the central bank predicted. The recession is partly being blamed on the drought that cut corn and soy crops in half. 19With very high inflation, poverty will likely increase as workers' pay and savings decrease. 20Possible improvement 21Argentina, rich in important grains, natural gas, and lithium, could see an increase next year as improved weather helps crops. A new gas pipeline will reduce dependence on costly imports, and demand is rising for the lithium needed for electric vehicle batteries. 22Soy and corn are expected to have stronger harvests, which will bring in much-needed foreign currency. 23Eugenio Marí is head economist at Libertad y Progreso Foundation. He said agriculture and oil and gas from rocks, called shale, can help the economy. The "harvest will help bring a greater flow of income in the economy, as will the greater production of (shale oil formation)," he said. 24I'm Dan Novak. 25Dan Novak adapted this story for VOA Learning English based on reporting by Reuters. 26________________________________________________ 27Words in This Story 28default - v. at fail to pay a debt 29consumer - n. a person who buys goods for personal use 30drought - n. an extreme deficit of rain for a long period 31swap - v. an exchange of one thing for another by agreement 32income - n. money that is received from work, investment or taxes