By Taos Turner
BUENOS AIRES--After years of rampant government spending and rigid currency controls, Argentina is so short on
dollars that whoever wins Sunday's presidential election will have to pursue unpopular policies to keep the economy
afloat.
Mired in a toxic mix of economic stagnation and one of the world's highest inflation rates, Argentines have been
ditching their pesos and seeking safety in the greenback. That puts them in competition with a government that is itself
scrambling to retain and obtain dollars to make debt payments and pay for imports.
The incoming president, who takes office Dec. 10, will need to stanch the bleeding of the central bank's foreign-
currency reserves, which have fallen by almost half since 2011 to $27 billion.
"Life is not going to be easy for the next government," said former Finance Minister José Luis Machinea.
One puzzle is how many dollars the next administration will actually have on hand. The growing demand for
greenbacks means the central bank is losing about $2 billion a month.
Around $11 billion in reserves are on short-term loan from China. An additional $3 billion is owed to bondholders
and $8 billion are deposits from the local financial system. Meanwhile, importers say the bank owes them around $9
billion for goods that have been brought into the country.
Those claims could the bank's holdings dangerously depleted. "By December that number will be around zero," said
Juan Luis Bour, chief economist at Argentine research firm FIEL.
A central-bank spokesman declined to comment.
In Argentine "caves," as the black-market exchange houses are commonly called, the peso has weakened to 16 to the
dollar, while the official rate has remained artificially strong at 9.5 pesos. Departing President Cristina Kirchner has
kept the official rate stable to contain inflation, estimated to reach 25% this year, but the policy has reduced
competitiveness for exporters.
As the global commodities bust has spread, a recession in Brazil has compounded Argentina's troubles. Brazil's
currency has weakened by about 32% this year, making it harder for Brazilians to buy Argentine exports.
The three leading candidates to succeed Mrs. Kirchner, including her preferred heir, Daniel Scioli of the ruling
Front for Victory coalition, believe key policies need correcting to rein in inflation and reduce a budget deficit
surpassing 6% of gross domestic product.
Argentina's economy boomed during Mrs. Kirchner's first term, bolstered by high prices for the country's soybean
exports. Poverty and unemployment fell. But from 2011 to 2014, the economy shrank 3.1% in per capita terms, the most in
Latin America, according to consultancy Orlando J Ferreres Asociados.
The Kirchner administration has aggressively printed money and increased public spending by around 30% in annual
terms. But continuing on that path would stoke further inflation, possibly forcing the next president to cut spending or
raise taxes--unpopular policies that could infuriate Kirchner loyalists in Congress.
The International Monetary Fund expects Argentina's economy to contract 0.7% next year, and analysts say inflation
could jump to 35% if the government devalues the peso.
But economists say the next president will have no choice but to ease currency controls and settle a legal battle
with U.S. hedge funds that has prevented Argentina from tapping global credit markets.
"None of the candidates can escape from this," says Nicolás Dujovne, a former director of Argentina's central
bank.
Mr. Scioli, who is leading in the polls, has pledged to gradually tweak the economy. His rivals, the conservative
mayor of Buenos Aires, Mauricio Macri, and Sergio Massa, a young dissident of the ruling Peronist movement, say they
would quickly lift currency controls.
Moving too slowly could spook investors and encourage average Argentines to ditch their pesos even faster. A
currency squeeze could further suffocate the economy and exacerbate import shortages.
"You can wait to make the changes, but would the economy wait for you?" Mr. Machinea said.
Devaluing the currency too quickly, however, could thrust the economy into a deep recession and push more people
into poverty.
Alberto Fernández, an adviser to Mr. Massa and former cabinet chief under Mrs. Kirchner and her late husband,
Néstor, said the economy has become bloated. "You can go on a strict diet over two months or decide to take it slow
over one year," he said. "But one thing is clear: No more candy and no more pasta for you."
To be sure, Argentina could roll over its loans from China or get fresh funding from multilateral institutions.
But businessmen here complain that currency controls and import barriers are upsetting investment plans.
América TV, Argentina's second-largest media group, hasn't been able to get government approval to import more
than $2 million in printing equipment for its newspapers, company Chairman Daniel Vila said. As a result, the firm's $
100 million investment plan to upgrade cable-TV and Internet service is in jeopardy. It took the firm two years to get
the central bank to give it the dollars needed to pay $100 million to a foreign creditor, he added.
"You need to improvise a lot to grow under these conditions," Mr. Vila said. "If not drastic, you'll need at least
convincing measures to boost investor confidence."
Santiago Pérez contributed to this article.
(END) Dow Jones Newswires 10-23-151927ET Copyright (c) 2015 Dow Jones Company, Inc.