BUENOS AIRES, Dec 10 (Reuters) - On Sunday, Argentina's new President, libertarian economist Javier Milei, delivered a bold inaugural speech, warning of the necessity of a sharp and painful fiscal shock to address the country's severe economic crisis. With inflation spiraling towards 200%, Milei emphasized that there was no alternative to this drastic adjustment.

Speaking before a crowd of cheering supporters at the steps of Congress, President Milei, 53, took over from Peronist leader Alberto Fernandez, whose government had struggled to curb soaring prices. Pointing out that the outgoing administration had left the country on the path to hyperinflation, Milei committed to avoiding such a catastrophic outcome.

While details were scarce in his speech, President Milei outlined key steps that would include a fiscal adjustment equal to 5% of the nation's GDP. He insisted that the burden of these cuts would fall on the state rather than the private sector. This approach aligns with his shock therapy economic plan, which has garnered support from investors and holds the potential to stabilize the embattled Argentine economy.

However, the implementation of such severe spending cuts raises concerns about exacerbating already high levels of poverty, with over two-fifths of the population living in hardship. Nevertheless, voters, driven by a desire for change, elected Milei in a November run-off against a ruling Peronist coalition candidate, expressing willingness to embrace the sometimes radical ideas espoused by the new President, including the closure of the central bank and dollarization.

Prominent supporters affirmed their hope in Milei's vision for the country. "He is the last hope we have left," said 72-year-old doctor Marcelo Altamira, criticizing previous governments for their "useless and inept" handling of economic crises, which he argued had devastated the country.

However, the challenges Milei faces are immense. Argentina's net foreign currency reserves are approximately $10 billion in the red, annual inflation has reached 143% and continues to rise, and a recession looms on the horizon, compounded by capital controls distorting the exchange rate.

The frequent boom-bust cycles experienced by Argentina have been fueled by money printing to cover regular deficits, leading to inflation and a weakening peso. In recent years, this situation has worsened as major cash crops, soy and corn, were affected by a severe drought earlier this year, causing reserves to dwindle.

President Milei warned that failure to curb inflation could result in an annual rate of 15,000%, while also highlighting the presence of a looming $100 billion debt "bomb."

Besides addressing domestic economic challenges, Milei will need to navigate international relationships, particularly with key trade partners such as China and Brazil, despite expressing criticisms of them during his campaign. Additionally, Argentina needs to renegotiate the $44 billion loan program with the International Monetary Fund (IMF), an essential step in revamping the country's financial stability.

As Milei assumes leadership, his libertarian coalition's limited representation in Congress necessitates engaging in negotiations with rival factions. To ensure broad-based support, Milei has already moderated his tone, assembling a first Cabinet comprised of mainstream conservatives rather than ideological libertarian allies. Notably, in his inaugural speeches, Milei did not mention dollarization, a contentious topic.

Contrary to past remarks deeming global warming a hoax, Milei's new climate diplomat confirmed that Argentina will remain a participant in the Paris Agreement on climate change.

Moving forward, Milei, alongside his choice for the economy ministry, Luis Caputo, is expected to unveil a more comprehensive economic plan in the coming week, focusing on spending reductions and closing the fiscal deficit.

In a brief address to supporters from the presidential palace balcony, Milei spoke of putting Argentina back on its feet and ushering in a new era of prosperity and liberalism, echoing former U.S. President Donald Trump's slogan.

During the swearing-in ceremony, President Milei was joined by various foreign dignitaries, including Ukrainian President Volodymyr Zelenskiy, Hungarian Prime Minister Viktor Orban, and a U.S. delegation. Former Brazilian leader Jair Bolsonaro and Uruguay's conservative leader Luis Lacalle Pou also attended. Notably absent were left-wing figures Luiz Inácio Lula da Silva of Brazil and Mexican President Andrés Manuel López Obrador.

In response to Milei assuming office, state energy firm YPF recently raised petrol pump prices by an average of 25%, anticipating an imminent sharp devaluation of the overvalued peso.

Acknowledging the inevitable short-term challenges, President Milei expressed confidence that their efforts would bear fruit in due course. Highlighting the lack of alternatives available, he emphasized, "We don't seek or desire the tough decisions that will need to be made in the weeks ahead, but unfortunately we have no choice."