When new Argentinian President Javier Milei promised to deliver an economic shock package, he wasn’t joking around.
So, on Tuesday (12) the new government announced a sharp devaluation of its currency, as well as cuts to energy and transportation subsidies.
These painful adjustments are what new President Javier Milei says are needed to deal with the catastrophic state of the country’s economy.
Associated Press reported:
“Economy Minister Luis Caputo said in a televised message the Argentine peso will be devalued by 50% from 400 to the U.S. dollar to 800 pesos to the dollar.
‘For few months, we’re going to be worse than before’, he said, two days after the libertarian Milei was sworn in as president of the second largest economy in South America and immediately warned of tough measures.”
Milei has publicly said that the country didn’t have time to consider other economic alternatives.
“Argentina is suffering 143% annual inflation, its currency has plunged and four in 10 Argentines are impoverished. The nation has also a yawning fiscal deficit, a trade deficit of $43 billion, plus a daunting $45 billion debt to the International Monetary Fund, with $10.6 billion due to the multilateral and private creditors by April.”
“Milei campaigned on a pledge to get rid of the peso and replace it with the dollar in order to get the economy back on track. The peso has been artificially supported for years by strict capital controls, and its value has plunged roughly 52% this year against the US dollar.
Argentina’s central bank in recent years has printed more of the peso to help the country’s government avoid defaulting on its debt. That has resulted in skyrocketing prices.”
The tough measures are just the first of several expected steps to deal with the hyperinflation that led Argentina’s central bank to raise its benchmark interest rate to 133%.
“Caputo on Tuesday reiterated Milei’s campaign theme that ‘there is no money’. […] ‘For a few months we’ll be worse off, particularly with inflation’, he said.”
In his victory speech, on Sunday, President Milei did not present many details of his economic plan.
But the outsider who wielded a chainsaw during the campaign – to symbolize his plans to heavily cut state spending — promised ‘drastic’ reforms – and, so far, is delivering.
“’I want you to be aware that we are going to begin the reconstruction of Argentina after more than a hundred years of decline, redrawing the ideas of freedom, although we are going to have to endure a period of hardness, we will move forward’, Milei, an economist, told the crowd as he was sworn into office.”