FILE PHOTO: Argentina's President Javier Milei looks on as he attends a Hanukkah celebration in Buenos Aires, Argentina, on December 12, 2023. Portal/Tomas Cuesta//Archive photo
BUENOS AIRES, Argentina (AP) — Argentina announced a sharp devaluation of its currency and cuts to energy and transportation subsidies on Tuesday as part of shock measures that new President Javier Milei says are needed to deal with an economic emergency.
READ MORE: Argentina's newly sworn-in President Milei warns of a shocking economic adjustment
Economy Minister Luis Caputo said in a televised message that the Argentine peso would be devalued by 50%, from 400 pesos to the dollar to 800 pesos to the US dollar.
“For a few months we will be worse off than before,” Caputo said, two days after the libertarian Milei was sworn in as president of South America’s second-largest economy and immediately warned of tough measures.
Milei said the country had not had time to consider other alternatives.
Argentina is suffering from 143% annual inflation, its currency has plummeted and four in 10 Argentines are impoverished. The country also has a massive budget deficit, a trade deficit of $43 billion, and a massive $45 billion in debt to the International Monetary Fund, with $10.6 billion owed to multilateral and private creditors as of April.
As part of the new measures, Caputo said the government is canceling tenders for all public works projects and cutting some state jobs to reduce the size of the government.
He also announced cuts to energy and transport subsidies, without giving details or saying by how much, adding that Milei's government is reducing the number of ministries from 18 to nine.
He said the measures were necessary to reduce the budget deficit, which he said was the cause of the country's economic problems, including rising inflation.
“If we continue as we are, we are inevitably heading towards hyperinflation,” Caputo said. “Our mission is to prevent a catastrophe.”
The IMF welcomed the measures, saying they provided “a good basis” for further discussions with Argentina over its debt to the institution.
“These bold initial measures aim to significantly improve public finances to protect the most vulnerable in society and strengthen the foreign exchange system,” IMF spokeswoman Julie Kozack said in a statement. “Their decisive implementation will help stabilize the economy and lay the foundation for more sustainable, private sector-led growth.”
Key figures in the former Peronist government of Alberto Fernández did not comment on the measures announced on Tuesday.
But social leader Juan Grabois, who is close to former center-left President Cristina Fernández (2007-2015), said Caputo “announced a social murder without batting an eyelid, like a psychopath who wants to massacre his defenseless victims .”
“With your salary in the private sector, in the public sector, in the national, social and solidarity economy, in the cooperative or informal sector, for pensioners and pensioners, you get half that in the supermarket,” he said. “Do you really think people won’t protest?”
“There is no money,” is a common refrain in Milei's speeches, explaining why a step-by-step approach to the situation is not a success. But he has promised that the adjustment will affect almost exclusively the state, not the private sector, and that it represents the first step toward regaining prosperity.
Milei, a 53-year-old economist, became famous on television with vulgar tirades against what he called the political caste. He parlayed his popularity into a seat in Congress and just as quickly into a presidential run. The self-described “anarcho-capitalist”'s stunning victory in the August primary sent shockwaves across the political landscape and upended the race.
Argentines, disillusioned with the economic status quo, were receptive to an outsider's outlandish ideas to fix their problems and transform the nation. He clearly won the second round of elections on November 19th – sending the Peronist political force that dominated Argentina for decades to flight. Still, it is likely to face stiff resistance from lawmakers in the Peronist movement and the unions it controls, whose members have said they refuse to forego wages.
On Sunday, Milei was sworn in at the National Congress building and outgoing President Alberto Fernández placed the presidential sash on his head. Some of the assembled MPs shouted “Freedom!”
Many Argentines have wondered who will run their country: the chainsaw-wielding anti-establishment crusader from the election campaign or the more moderate president-elect who has emerged in recent weeks.
As a candidate, Milei promised to rid the political establishment of corruption, eliminate 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 he won, he named Caputo, a former central bank president, as his economy secretary and one of Caputo's allies to run the bank, appearing to have put his much-touted dollarization plans on hold.
Milei had portrayed himself as a willing warrior against the spread of global socialism, similar to former US President Donald Trump, whom he openly admires.
However, in his inaugural speech, he said that he had no intention of “persecuting anyone or carrying out old feelings of revenge” and that any politician or trade union leader who wanted to support his project would be “welcomed with open arms”.
His apparent moderation could be due to pragmatism, given the magnitude of the immense challenge before him, his political inexperience and the need to forge alliances with other parties to implement his agenda in Congress, where his party is leading in the number of seats is by far third place.