Argentina’s new president is implementing shock economic measures, devaluing the currency and cutting subsidies

FILE PHOTO: Argentina’s President Javier Mille looks on as he attends a Hanukkah celebration in Buenos Aires, Argentina on December 12, 2023. REUTERS/Tomas Cuesta//File photo

BUENOS AIRES, Argentina (AP) — Argentina announced a sharp devaluation of its currency on Tuesday and cuts to energy and transport subsidies as part of shock measures to deal with an economic emergency, new President Javier Mille says.

read more: Milei, Argentina’s newly-elected president, has warned about adjusting to shocks in the economy.

Economy Minister Luis Caputo said in a televised message that Argentina’s peso would depreciate by 50% to 800 to the dollar, from 400 pesos to the US dollar.

“For a few months, we’re going to be worse than before,” Caputo said, immediately warning of tougher measures two days after libertarian Miley took office as head of South America’s second-largest economy.

Miley said the country did not have time to consider other alternatives.

Argentina suffers from 143% annual inflation, its currency has collapsed and four out of 10 Argentines live in poverty. The nation has a yawning fiscal deficit, a $43 billion trade deficit and a $45 billion debt to the International Monetary Fund, with $10.6 billion owed to multilateral and private creditors by April.

As part of the new measures, Caputo said the government would cancel tenders for any public works projects and cut some state jobs to reduce the size of government.

He announced cuts to energy and transport subsidies, without giving details or saying how much, and said Mili’s administration was reducing the number of ministries from 18 to nine.

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He said these measures were necessary to reduce the fiscal deficit, which he believed was the cause of the country’s economic problems, including rising inflation.

“If we continue, we’re inevitably headed for higher inflation,” Caputo said. “Our mission is to avoid a disaster.”

The International Monetary Fund welcomed the moves, saying they provided a “good basis” for further discussions with Argentina on its debt.

“These bold initial steps aim to significantly improve public finances to protect the most vulnerable in society, and strengthen the foreign exchange regime,” IMF spokesperson Julie Kozak said. “Their decisive implementation will help stabilize the economy and lay the groundwork for more sustainable and private sector-led growth.”

Key figures in the former Peronist government of Alberto Fernandez did not comment on the measures announced on Tuesday.

But Juan Grapois, a social leader close to former center-left President Cristina Fernández (2007-2015), said Caputo declared “a social murder without hesitation, like a psychopath about to slaughter his defenseless victims.”

“In the private sector, in the public sector, in the popular, social and solidarity economy, in the co-operative or informal sector, retirees and pensioners get half your salary at the supermarket,” he said. “Do you really think people won’t protest?”

“No money,” is a common refrain in Miley’s texts, which she uses to explain why a step-by-step approach to the situation is a non-starter. But he has assured that the adjustment will affect the government entirely rather than the private sector and is the first step towards restoring prosperity.

Miley, a 53-year-old economist, rose to fame on television with a series of defamatory rants against what he called the political caste. He parlayed his popularity into a congressional seat and then quickly ran for president. The landslide victory of the self-proclaimed “anarcho-capitalist” in early August sent shock waves across the political landscape and heightened the race.

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Argentinians, disillusioned with their economic condition, embraced the foreigner’s exotic ideas to solve their woes and transform the nation. He won decisively in the second round of elections on November 19 – and dispatched the Peronist political force that had dominated Argentina for decades. However, he faces fierce opposition from lawmakers from the Peronist movement and the unions it controls, whose members have said they will refuse to lose wages.

On Sunday, Millay was sworn in inside the National Congress building, and outgoing President Alberto Fernandez placed the presidential cap on him. Some of the assembled lawmakers chanted “Freedom!”
Many Argentines have wondered which Miley, the chainsaw-wielding, anti-establishment crusader from the campaign trail or the president-elect who has emerged in recent weeks, will rule their country.

As a candidate, Miley promised to purge the political establishment of corruption, abolish the central bank, which he accused of printing money and fueling inflation, and replace the rapidly depreciating peso with the U.S. dollar.

But after winning, he appointed Caputo, a former central bank chief, as his economy minister and one of Caputo’s allies to head the bank, seemingly putting his more popular plans for dollarization on hold.

Like former US President Donald Trump, Miley casts herself as a willing warrior against the mouthpiece of global socialism.

However, he said during his opening speech that he had no intention of “hurting anyone or settling old vendettas” and that any politician or union leader who wanted to support his plan would be welcomed with “open arms”.

His apparent moderation may stem from pragmatism, the scope of the biggest challenge before him, his political inexperience and the need to ally with other parties to implement his agenda in Congress, where his party is ranked third.

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