Last night the Argentines elected a president who will barely have time to celebrate the victory. The time is serious and he will quickly have to thread the needle to rebuild an economy that is about to fall to pieces, is full of patches and is held with pliers. Reassessed from the top down, the urgent upswings have so far avoided (another) major monetary crisis, but the fears of the bottom up will not dissipate overnight.

Whether it is the Minister of Economy and officialist candidate, Sergio Massa, or the aspiring libertarian, Javier Milei, whoever leads the Executive from December 10 will have the major challenge of applying a stabilization plan that, at least, reduce Argentina’s deep macroeconomic imbalances and improve expectations at home and with international economic institutions.

The starting point is very complex and will condition the viability and chances of success of any economic program that is implemented, whatever it may be. “Whoever wins on November 19 will inherit a calamitous economic situation. The current mix of policies has led to unsustainable macroeconomic imbalances,” explained Michael Heydt, senior vice president of Global Sovereign Ratings at the DBRS Morningstar rating agency.

Fiscal and monetary burdens, high inflation, lack of monetary reserves, high indebtedness, stagnant activity and increasing poverty rates are the accounts of the rosary of problems that the next head of state will face.

With no oxygen to run, South America’s second-largest economy shrank 1.6% in the year to August, and the consensus of private consultants says GDP will fall 2% this year from an expansion of 5% in 2022.

The main concern of Argentines is inflation, with a consumer price index that reached 142.7% year-on-year in October and which, according to private projections obtained by the Central Bank, will accumulate this year an increase of 185 %, the highest since the hyperinflation of the 1989-1990 biennium.

Inflation fuels the demand for dollars for hedging in a market traversed by severe restrictions on the official spot, multiple parallel exchange rates and recurring jumps in quotations that feed back into inflationary inertia in the real economy.

At the root of this phenomenon are the fiscal and monetary imbalances in Argentina, which, without access to international markets and with a trade deficit, is financed by issuing money and placing debt on the domestic market.

According to private calculations, the accumulated fiscal deficit until September is around the equivalent of 1.4% of GDP and the Central Bank’s real net reserves are negative, at around -10.7 billion dollars. Without reserves, Argentina restricts imports – thus complicating local production – and has less and less power to appease a foreign exchange market that suffers from frequent tensions.

According to Heydt, “the lack of reserves and the large differential between the official and unofficial exchange rates suggest that the next Administration is in for a devaluation of the currency”.

“But a monetary adjustment in the context of triple-digit inflation is a significant risk, because, without a plan to anchor inflation expectations, more fuel will be added to the inflationary fire. Therefore, the next Administration will have to act quickly to implement a stabilization plan”, he says.

Milei promises to dollarize the economy, while Massa bets on a better 2024 for the peso along with a boom in exports, but, even so, most experts discount an exchange rate correction.

In addition, the president will have to fight with the International Monetary Fund, an organization to which Argentina owes about 46 billion dollars and with which in 2022 it signed an agreement on extended facilities with demanding goals that are difficult to comply with and that it has not managed to escape the specter of a colossal cessation of payments. In this scenario, the Argentines will vote, who, despite having an unemployment rate of 6.2% – the lowest since 2015 –, receive salaries that are inflated by inflation, which explains that, even with work, many make up this 40.1% of the poor population.