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Argentine leader Milei warns economic shock unavoidable

Newly sworn-in President Javier Milei warns Argentina still faces many economic hurdles.

Newly sworn-in President Javier Milei warns Argentina still faces many economic hurdles. Photo: AAP

Argentinian President Javier Milei has taken office, warning in his maiden speech he had no alternative to a sharp, painful fiscal shock to fix the country’s worst economic crisis in decades, with inflation heading towards 200 per cent.

“There is no alternative to a shock adjustment,” the libertarian economist said on the steps on Congress on Sunday after taking the presidential baton and sash, with crowds of supporters cheering despite Milei saying the economy would worsen in the short term.

“There is no money.”

Milei, 53, a former TV pundit who shot to fame with expletive-ridden tirades against rivals, China, and the Pope, is taking over from Peronist leader Alberto Fernandez, whose government was dogged by failures to rein in soaring prices.

“The outgoing government has left us on track towards hyperinflation,” Milei said.

“We are going to do everything we can to avoid such a catastrophe.”

While the speech was light on details, he said key steps would include a fiscal adjustment equivalent to 5 per cent of the country’s GDP through cuts that he said would fall on “the state and not the private sector”.

The wild-haired outsider marks a major gamble for Argentina: his shock therapy economic plan of sharp spending cuts has gone down well with investors and could stabilise the embattled economy, but it risks pushing more people into hardship with over two-fifths already in poverty.

However, voters – who drove Milei to victory in a November run-off against a ruling Peronist coalition candidate – have said they were willing to roll the dice on his sometimes radical ideas that include shutting the central bank and dollarising.

“He is the last hope we have left,” said 72-year-old doctor Marcelo Altamira, who slammed “useless and inept” governments for years of boom-bust economic crises.

The outgoing Peronist government, he said, “had destroyed the country”.

The challenges are huge. Argentina’s net foreign currency reserves are estimated at $US10 billion ($A15 billion) in the red, annual inflation is 143 per cent and rising, a recession is around the corner and capital controls skew the exchange rate.

Argentina has gone through boom-bust cycles for decades with money printing to fund regular deficits stoking inflation and weakening the peso.

That has worsened in recent years as reserves have dwindled with a major drought earlier this year hitting main cash crops soy and corn.

If not tamed, inflation could reach 15,000 per cent annually, Milei warned in his speech, pledging to “fight tooth and nail” to eradicate it.

He also warned about a $US100 billion debt “bomb”.

The major grains exporter needs to revamp a creaking $US44 billion loan program with the International Monetary Fund (IMF), while Milei needs to navigate ties with important trade partners China and Brazil, whom he criticised during the campaign.

– AAP

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