Inflation and the dollar: How Argentina’s economy will change after the elections, according to economists

Economists believe that the economy will not be dollarized under the next president, that inflation will rise further if the ruling party wins, and that Uniting for Change has the best chance of growing the economy.

According to a report by Latinfocus, “a survey conducted between October 2 and 5 among 13 panelists, the liberal Javier Miley “I’ll get the presidency.” However, “they believed that he would not have a majority in the Congress, which would complicate governance.

Also, “The success of the present Minister of Economy, Sergio Massa, “This would mean a continuation of heavy government intervention in the economy.”

“Two-thirds of pollsters see Javier Mili as the winner of the presidential election, and a quarter of those polled see victory. Patricia Bullrich Sergio Massa has only one hope of victory.

“Since Milli’s party currently lacks parliamentary representation, even if it becomes president, it will lose its legislative majority. This, combined with the country’s powerful trade union movement and the current dire economic situation, will limit Milli’s ability to implement all of his radical reforms,” ​​it explained.

“The initial step towards dollarization is to lower the official exchange rate to the market rate, which currently exceeds 900 per dollar. The country’s dollar shortage and lack of access to international financial markets cast doubt on the technical viability of dollarization.

“Even at a very low exchange rate of 1,000 to the dollar, Goldman Sachs analysts estimate that the dollar would need $35 billion,” it explained.

“The political challenges of dollarization will also be high, with traditional left-right coalitions unlikely to support the policy as Mili does not have a parliamentary majority.”

“Their best hope is to convince the center-right Together for Change coalition to support dollarization,” they explained.

It clarified that “majority of panel members surveyed do not believe total dollarization will occur during the next presidential term.”

“If fully implemented, Miley’s policy proposals will cause short-term pain. Inflation will immediately increase due to a strong depreciation of the exchange rate and removal of subsidies,” they pointed out.

However, they clarified that “more long-term economic stability is also possible”.

It pointed out that “if carried out successfully, this transition would result in a sharp drop in inflation over the medium term, but it would also mean sacrificing freedom to set monetary policy.”

“It is almost certain that their policies will not be fully implemented due to social rejection of severe austerity measures and the need to reach agreements in Congress with the Coalition for Change.”

Therefore, “the most likely outcome on the domestic policy front is a greater role for the US dollar, loosening of restrictions on private businesses and some spending cuts, rather than full dollarization in cuts currently planned for a drastic 14% of GDP.”

“Relations with China and Brazil — Argentina’s two main export markets — will cool under Millay, who has threatened to sever diplomatic ties with both countries.”

“This could affect trade and investment. “In particular, trade relations with China have strengthened in recent months, with Sergio Massa receiving $3 billion in Chinese investments in recent visits to Beijing,” he said.

“Under a Bullrich presidency, there will be efforts to attract more foreign investment and improve the operating environment for the private sector, while foreign policy will be more pragmatic than under Milley, and relations with China and Brazil will be more stable.” “Although currently highly unlikely, a Sergio Massa victory would mean a continuation of current policies, including monetary and trade restrictions, high public spending and large fiscal deficits,” they said.

In September, “Masa has already announced income tax cuts for millions of citizens, and he has shown a willingness to increase spending despite an already precarious fiscal situation. Relations with China and Brazil will be smooth, which will help inflow of investments from both countries.

“Most of our panelists see higher average GDP growth under a Bullrich presidency. “This may be part of their pro-business stance.”

Also, “he proposes much softer spending cuts than Miley and has much stronger support in Congress, as his Together for Change coalition currently holds more than 45% of the seats in both the lower house and the senate”.

“Most of our panelists see inflation under Sergio Massa’s government, perhaps due to a continuation of loose fiscal policy and a lack of confidence-inspiring measures for peso investors.”

On the other hand, “a minority expects inflation to be much higher with Millay. This may be due to expected inflation at the start of his presidency, given Millay’s promises to stabilize the official and parallel exchange rates and sharply reduce subsidies.”