Ariel Palacios comments on Milei's first fiscal package to contain the crisis in Argentina
A day after the plan was announced, oil company Shell raised fuel prices by around 37%, and Argentine stateowned company YPF increased prices by an average of 25%, leading to an increase rush to gas stations because they are afraid of further climbs.
This afternoon, a liter of regular gasoline in Buenos Aires rose from 446 pesos (about R$ 5.95) to 612 pesos (about R$ 8.22).
“We knew that sooner or later something would break out. We are paying the consequences,” Argentine Franco Hit, 43, told Portal as he filled up his car’s tank at a gas station in Buenos Aires. “It will be a difficult, very difficult year.”
Shortly after taking office, Javier Milei's new energy minister defended that YFP sets its own prices, without control from the government, which owns 51% of the oil company's shares.
Also this Wednesday, the Argentine Statistics Institute announced that inflation in the country reached 160.9% in the last 12 months. With the rise, the Cumulative inflation reached 148.2% in 2023At the highest annual result since the hyperinflation of 1990as the year ended above 1,300%.
On Tuesday, Argentina's Economy Minister Luis Caputo announced the adjustment plan, the most anticipated measure of the new government. The package includes conditions such as the devaluation of the peso, the reduction of subsidies and the cancellation of tenders (more on this below).
All measures will come into force at the turn of the year, as Argentine government spokesman Manuel Ardoni announced this morning.
Ardoni also said that “in the coming days” the government of Javier Milei will also publish details of the new tariffs for public transport, energy, gas and water all of which will increase significantly in value, especially due to the reduction in subsidies on these sectors.
The announcement of the customization package states: Caputo did not specify how severe the reduction in subsidies would be.
Despite criticism of the harsh measures, which, as Milei himself admitted, will make life worse for the population, the government spokesman argued that the new management had found “a patient in the intensive care unit,” referring to the public coffers.
The plan was highly anticipated by the Argentine population and market, which had already been anticipating throughout the election campaign the harsh and orthodox measures that Milei had predicted to curb the country's economic crisis, one of the worst in the country's recent history plunged into a spiral of hyperinflation and increasing poverty.
The adjustment was dubbed the “chainsaw plan” in the press, in reference to the chainsaw that Milei displayed in the presidential campaign and which symbolized what the candidate wanted to achieve with public spending at the time—savagely cutting it.
The Central Bank of Argentina will announce this Wednesday (13) measures related to monetary policy, the key interest rate and debt.
The measures include:
1. Peso devaluation: 1 US dollar is worth 800 pesos; Today each dollar is worth 365 pesos. These include a temporary increase in the import tax (“Pais” levied on dollar purchases) and withholding taxes on nonagricultural exports.
- What the minister justified: “We will adjust the official exchange rate so that productive sectors have sufficient incentives to increase production.”
- Regarding the increase in import taxes, he said: “In this way, we benefit exporters through a better price and equalize the tax burden for all sectors, so that the agricultural sector is no longer discriminated against.”
2 bids: suspend new public construction tenders and cancel tenders that have not yet started.
- What the minister justified: “There is no money to fund further public works, which, as we know, often end up in the pockets of politicians and business people. Public works have always been one of the sources of corruption in the state, and with us that ends. Infrastructure. “The works in Argentina are carried out by the private sector because the state does not have the money or financing to carry them out.”
3. Reduce energy and transport subsidies: In practice, electricity and gas bills will increase, as will train and bus fares throughout the Buenos Aires metropolitan area.
- What the minister justified: “Today the state pays artificially very low prices for energy and transport tariffs through subsidies. Politicians have always done this because it is how they deceive people and make them believe they are getting extra money. But Argentines must have already realized that these subsidies are not free, since they are paid with inflation: what they give you with the invoice price, they charge you with price increases in the supermarket. And with inflation, it is ultimately the poor who finance the rich. “In addition, the subsidies in the metropolitan region are an act of discrimination against the inland provinces.”
4. Reduce transfers to the provinces to a minimum.
- What the minister justified: “It is a resource that, unfortunately, in our recent history has been used as a bargaining chip to broker political favors.”
5. Suspension of government advertising for one year.
- What the minister justified: “In 2023, 34 billion pesos were spent on advertising between the presidency and ministries. There is no money for expenses that are not absolutely necessary, let alone to use taxpayers' money to support the media that is created only to extol the virtues of the current government.
6. Public offices: Do not renew employment contracts that are less than one year old.
- What the minister justified: “A common practice in politics is to involve thousands of family members and friends before a change of government in order to protect their privileges.”
7. Break in the government structure: Reduction in the number of secretariats from 106 to 54 and ministries from 18 to nine.
- What the minister justified: The aim is to reduce the number of commissioned bodies.
8. Social: Prioritize social projects that do not require intermediaries and strengthen programs like the one that supports mothers with children.
- What the minister justified: “Because of this emergency situation that we are about to experience, the President has asked us to focus primarily on the people who could suffer the most.”
9. Replace the import system with a system that does not require prior license information.
- What the minister justified: “Discretion is closed and transparency of the import approval process is guaranteed. In other words, anyone who wants to import can do so, period.”
“We are in the worst phase of our history,” said the minister, who said Argentina spends much more than it earns the budget deficit. “If we continue as before, we will have hyperinflation.” The idea is to “neutralize the crisis,” he says.
The announcement was prerecorded and broadcast two hours late. There was no room for questions from journalists.
The International Monetary Fund (IMF) praised the measures, calling them “courageous.”
“These bold first measures aim to significantly improve public finances to protect the most vulnerable in society and strengthen the exchange rate system,” the agency said in a statement.
“Its decisive implementation will help stabilize the economy and lay the foundation for more sustainable, private sectorled growth.”
The package was the most anticipated measure by new President Javier Milei, who promised deep cuts in the state structure during the election campaign.
Ariel Palacios comments on his first fiscal package to contain the economic crisis in Argentina
Argentina is experiencing one of the worst economic crises in its recent history. 40% of the population lives in poverty and inflation is over 140% annually. Milei said that the The cut in public spending will be equivalent to 5% of the country's gross domestic product (GDP)..
Argentine government spokesman Manuel Ardoni had already spoken of a “severe budget cut” with a focus on social revenues and said the package designed by Caputo and Milei was aimed at “preventing a major catastrophe.”
“We understand that the situation is serious and are aware that the situation could be even worse,” Adorni said.
In the morning, the spokesman also announced that for a year, all government statements to the press will be made via recorded videos, which will be shown to journalists in a room at the Casa Rosada without the possibility of questions.
Halve ministries
On Sunday, shortly after taking office, Javier Milei signed a decree, the first of his term, reducing the number of ministries in his country to nine half of what his predecessor hadformer President Alberto Fernández.
The ultraliberal government will therefore have the following portfolios:
- Ministry of Interior;
- Ministry of Foreign Affairs;
- Ministry of International Trade and Worship;
- Ministry of Defense;
- Ministry of Economic Affairs;
- Ministry of Infrastructure;
- Ministry of Justice;
- Ministry of Security;
- Ministry of Health and Human Capital.
According to Milei, that is This measure is the first to lead to a reduction in public spendingone of the flags he raised during his inaugural speech.
“There is no solution without attacking the budget deficit. The solution implies an adjustment in the public sector, which is the responsibility of the state and not the private sector,” he said.
End of home office and job meeting
1 of 2 Milei took office on Sunday December 10th Photo: Portal via BBC Milei took office on Sunday December 10th Photo: Portal via BBC
On Monday (11), on his first day at the helm of the country, Milei ordered an end to home working in the public sector and a review of government positions and contracts.
At the meeting, which took place at the Casa Rosada, the government headquarters, Milei instructed ministers to introduce 100 percent attendance work for all members of their departments.
According to his deputy Victoria Villaruel, the president also called for a “general inventory” of all officials and mandated bodies as well as an overview of all contracts in force in the ministries.
The announcements sparked fears of mass layoffs and layoffs in the public sector throughout the country throughout the day, according to local press.
Milei explained that The situation is likely to get worse in the short term until the first measures bear fruit. And he reiterated that the government has no money: “Unfortunately I have to say: 'no hay plata'.”
“This will have a negative impact on activity, employment and the number of poor and vulnerable people. There will be stagflation.” [situação em que há estagnação da economia e inflação alta], but it's something very different than what we've had for the last 12 years. “It will be the last bitter drink to start rebuilding Argentina,” he said.
“It won't be easy: a hundred years of failure doesn't end in one day, but one day it begins, and today is that day.”
The Argentine president addressed his constituents on the steps of Congress. This was a breach of protocol because this speech normally takes place in Parliament.
Later, at the Casa Rosada, he addressed the public again, saying that his election represented “the end of the populist night and the rebirth of a prosperous and liberal Argentina.”
Among the authorities who attended the inauguration were former President Jair Bolsonaro and President of Ukraine Volodymyr Zelensky. President Lula did not travel to Buenos Aires and sent his chancellor Mauro Vieira as Brazil's representative.
In his inaugural speech, Milei also mentioned high inflation of over 140% per year and blamed Peronist governments for it. Before Alberto Fernández, who has since resigned from office, the rightwing Mauricio Macri, an ally of Milei, ruled. Before Macri, Cristina Kirchner.
“They have ruined our lives and increased our wages tenfold. Therefore, it should come as no surprise that they leave 45% poor and 10% destitute.”
“Argentinians powerfully expressed the desire for change from which there is no turning back “A new era of peace and prosperity in Argentina,” he said.
2 of 2 Milei receives the presidential baton from Alberto Fernández, another symbol of power in Argentina Photo: Natacha Pisarenko/AP Milei receives the presidential baton from Alberto Fernández, another symbol of power in Argentina Photo: Natacha Pisarenko/AP