Election Season in Argentina: A Battle Against Hyper-Inflation

Author: Julien Prieur, Graphics: Kayla Su

The BRB Bottomline: Argentina teeters on the edge of an economic abyss, grappling with soaring inflation rates and a plummeting local currency. The historical legacy of Peronism, marred by corruption and isolationist economic policies, has forced everyday Argentines to resort to currency black markets. As the 2023 national elections loom, the country faces a critical choice between the bold dollarization plan proposed by Javier Milei or Sergio Massa’s Peronist status quo.

Argentina is currently experiencing one of its worst economic downturns in history. As of October 2023, inflation rates have soared to 140%, the fourth highest in the world, resulting in the Argentine peso losing 44% of its value in just the two months prior. As the country gears up for a runoff election in November between the leading Peronist candidate, Sergio Massa, and the radical outsider, Javier Milei, the world turns its attention to the uncertain future of Argentina.

Argentina’s Cultural and Global Success

The vibrant culture of Argentina transcends borders, with legendary athletes like Messi and Maradona becoming global icons. Apart from its international success in sports, Argentina is also well-known for its cuisine, boasting some of the highest-quality asado steaks, delicious dulce de leche, and Berkeley’s top selling drink during finals week, yerba mate tea. The Latin American country has its fair share of widespread influence in the artistic world, as the tango was born in the colorful streets of Buenos Aires. Argentina’s cultural influence has yielded $41.5 billion from the travel and tourism industry per year, constituting nearly 10% of the nation’s GDP before the pandemic.

A Story of Missed Opportunities

Argentina is Latin America’s third-largest economy, with a nominal GDP of $621 billion. With a median age of 32 among its 45 million people, the country boasts one of the youngest populations in Latin America. Additionally, Argentina is home to some of the largest mineral and natural resource deposits in the world, especially its vast copper and lithium reserves, reaching a decade-high $3.6 billion in exports last year. Argentina is also the eighth-largest country in terms of landmass, which is conducive to a strong agricultural industry accounting for over 50% of land use. Paired with the steady stream of tourism each year, Argentina seems to have all it needs to become a leading economy capable of providing comfortable living standards and adequate welfare for its residents. In reality, Argentina is a country that never misses an opportunity to miss an opportunity.

The Shadow of Peronism

A century ago, Argentina was on the upswing, growing economically and expanding its global influence. More recently, however, the country has been riddled with crises stemming from corrupt government officials and poor economic decisions. From manipulating the 1978 FIFA World Cup for nationalist propaganda to having five presidents within 12 days in 2001, many of the problems faced by the nation can be traced back to its Peronist political heritage. Influenced by Mussolini’s fascist regime, the rise of General Juan Peron in 1946 led to a radical departure from the monotonous oligarchic rule of the 19th century in favor of populist nationalism, which appeared to advocate for equal rights among the working class and domestic industrialization. Throughout the rest of the 20th century, Peronist Argentina maintained an isolationist and nationalist stance, imposing high export taxes and avoiding many foreign investment opportunities. Under Peronist administration for 16 of the last 20 years, the government has emphasized labor and public subsidy-based policies rather than focusing on foreign investment, global trade, or technology development. This approach has led to a substantial portion of Argentina’s GDP being allocated to public spending and services such as subsidies for energy, transportation, and state-related wages. The country has enforced its Peronist vision of labor management with an increase in wages for low-income workers and developed welfare schemes, which have not always been effective in limiting poverty. Most recently, Argentina has borrowed billions of dollars from the IMF, amassing massive fiscal debt and defaulting on numerous occasions. The central bank of Argentina has continued to print more money to alleviate the pressures of debt and inflation, resulting in currency devaluation and rising prices.

Current Economic Woes

Had this article been published five years ago, I would be telling a different story. Argentina has often been subject to periods of rapid economic growth, which were subsequently followed by massive declines. Four years ago, I visited the capital of Buenos Aires on a student exchange program. I was able to experience the vibrant culture and meet the lively Argentine people, taking some unforgettable memories back home with me. As I arrived at the airport, I was immediately taken aback by the dismal value of the peso against the dollar. This same problem persists today and is being exacerbated by extraordinarily high inflation rates, leading to a reduction in consumer purchasing power. 

How have the Argentine people adapted to this issue? Over the past few years, a new black market for U.S. dollars has developed on the streets of Buenos Aires. The economic policies of Argentina restrict its citizens from exchanging pesos for dollars by imposing a cap of $200 converted per month. Popularly known as the “most legal illegal activity,” a large number of Argentines exchange the virtually worthless peso for dollars at their local cueva (cave), or black market currency exchange. Given the abysmally low exchange rate (1 peso = 0.0029 USD), Argentines are racing to exchange their paychecks in pesos for dollars to amass as much savings as possible. Instead of depositing these dollars at the bank, desperate Argentines keep their dollars in safe deposit boxes to eventually exchange them back to pesos. Converting their dollars back into pesos only accelerates the soaring inflation, as the pursuit of purchasing power leads to Argentines collecting larger stacks of pesos each month.  

The endless cycle of economic despair is further perpetuated by people wanting to spend their money on essential goods as fast as possible before it loses its value. The increase in consumer spending has contributed to even higher inflation, which continues to depreciate the peso. Many people are seeing their savings cut in half  — while their rent doubles at the same time. Low-skilled and day-to-day workers find themselves on a slippery slope, as their already modest wages are becoming increasingly insignificant. Restaurant owners and local supermarkets are changing their prices on a daily basis. In the middle of this chaotic economic backdrop, Argentines are left with no choice but to look toward the polls.

Election Season and New Horizons

The elections of 2023 are a complex and contested battle for the future of Argentina. The current Peronist president, Alberto Fernandez, has implemented numerous center-left policies in order to combat inflation. However, his failure to fundamentally resolve the issue has led to the rise of more radical perspectives on how to tackle inflation. The right-wing and libertarian Javier Milei has come out as an unexpected outsider for the elections, promoting his vision to abolish Argentina’s central bank to make way for a full dollarization of the economy.

Inspired by neoclassical and neoliberal economists such as Ludwig von Mises and former populist presidents like Donald Trump and Jair Bolsonaro, Milei is contemplating a massive change to tackle Argentina’s inflation problem. Several other Latin American countries have adopted the US dollar as local currency following severe economic crises. Dollarizing the economy would streamline short term transactions, stabilize inflation rates, and deter capital flight while encouraging local residents to retain their savings in the domestic financial system. Within Argentina’s current two-currency society, a full dollarization would effectively eliminate the need to obtain dollars for a higher exchange rate on the black market. Conversely, this move could ultimately lead to a loss of the country’s currency independence, exposing Argentina to financial risks due to its dependence on the U.S. dollar while limiting its own monetary policies. 

The libertarian candidate is also proposing to cut down on several components of the current democracy, such as removing abortion rights and limiting research funding. Milei’s radical approach to “chainsaw” the status quo has appealed to many of the younger Argentine generations who believe that radical changes are necessary to achieve better welfare. This past August, Milei garnered a staggering 30.5% of votes in the primaries, crushing his center-left Peronist opponents. However, in the national elections that took place on October 22nd, Argentina’s current Economy Minister, Sergio Massa, surprised everyone with 36% of the votes over Milei’s mere 30%. Massa is proposing a more moderate plan that still differs from past Peronist approaches to inflation, counting on gradual shifts to balance the economy. If elected, the Economy Minister is planning to restore fiscal balance by reducing subsidies and public spending, as well as fostering a competitive exchange rate by encouraging exports and reducing imports. 

The elections will proceed with a runoff on November 19th, with candidates required to gain at least 45% of the votes, or 40% with a 10 percentage point difference, to be elected. Renowned for its stunning beauty as well as its rich and vibrant culture, Argentina is not just a country with immense growth potential — it serves as the beloved home for a people who truly deserve a brighter future.

It may only be a matter of time before the Argentines see a glimmer of hope in these trying times, as the upcoming elections hold the possibility for great change unlocking the nation’s brimming potential — or a continuation of past mistakes.

Take-Home Points

  • Argentina is currently facing critical inflation rates and currency depreciation.
  • The country boasts a historically rich culture and far-reaching global influence. 
  • The impacts of 20th century Peronism have led to extended corruption and isolationism policies.
  • Argentines now depend on currency exchange black markets to save money.
  • The loss of purchasing power and rapid consumer spending leads to a vicious cycle of inflation.
  • Right-wing libertarian Javier Milei has emerged as a radical challenge to the Peronist status quo with a dollarization plan.
  • The current Economy Minister Sergio Massa surprisingly came in first in the October elections.
  • Runoff elections to decide the president will take place on Nov. 19 between Milei and Massa.

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