Argentina ended 2023 with an inflation rate of 211.4% year-on-year, overtaking Venezuela (193%) as the country with the fastest rising prices in Latin America. The consumer price index (CPI) was 25.5% in December, more than twice as high as any other month last year; and the highest value in a single month in three decades. The increase reflects the blow of the change of government in Argentina, which saw large and rapid increases last month as the new executive led by the far-right Javier Milei advocated a 50% devaluation of the peso and the floating of some currencies at fixed prices. The rise in CPI was no surprise. “A number below 30% would mean that the success achieved is resounding,” Milei said this Thursday morning. Since coming to power on December 10, the president has clung to hyperinflation to defend his fiscal adjustments.
December's gains were driven primarily by goods and services, which rose 30%; health with an increase of 32.6%; and transportation at 31.7%. Food prices rose 29.7% last month. Many sectors had reached agreements for increases with the previous Peronist government and were released after Milei's victory. As is usual in Argentina, the index published for December is already starting to show its age. In January, for example, private health insurance announced increases of around 40%, and public transport in the city of Buenos Aires and its metropolitan area increased by 45%, a rate that the government plans to increase each month depending on the development of the consumer price index.
Milei has entered all-or-nothing territory. This week, Congress began debating in specialized commissions the law that the executive has described as “foundations and starting points for the freedom of Argentines” and in which the government promotes a profound reform of the Argentine state in more than 600 articles. From money laundering, pension reform and the sale of public companies to prison sentences for protesters blocking roads or the approval of a new express divorce regime, the government has entrusted its entire adjustment plan to the monumental law that it submitted to Congress and approved almost without concessions . Calls for his approval have already escalated into threats.
Argentina announced on Wednesday that it had reached an agreement with the International Monetary Fund to release $4.7 billion that the country will use to pay off its debts to the organization itself. In doing so, the government has revived an agreement that the last Peronist government had promoted in January 2022 to repay the $44,000 loan requested by the conservative Mauricio Macri four years earlier. The IMF welcomed the “ambitious stabilization plan” advocated by Milei, but warned against turning off the tap if there is no “continuous and lasting implementation” of the fiscal adjustment. “To the extent that the law is not passed, the measures will be harsher,” warned Economy Minister Luis Caputo on Thursday evening, explaining that Milei had the “courage” to take “shock measures” and that society had him in the vote accompanied. “The question is whether politicians are able to cope with this situation,” he concluded.
Whether Argentine society will support price increases as part of the government's budget adjustment remains to be seen. But Milei has managed to maintain some popular support. According to a report by the consulting firm Escenarios, which examined around 2,150 cases between December 20 and January 10, the government has the approval of 39.3% of the population, more than three times the 11.3% that Peronism received in the December left behind. Other polls, such as those by consultancy Opinaia, give Milei a popularity rating of 35%, much lower than the 55% with which he came into government, but about five points higher than his tough vote, the 30% he received. in the first round before winning the second round on November 19th.
Argentina has committed to the IMF to build $10 billion in net reserves in 2024 and bring its budget deficit, which was 3% in 2023, to a surplus of 2%. And the organization that has followed Milei's line and proclaimed that Argentina's economy “will get worse before it gets better” has also asked him to tone down the tone of the discussion and seek consensus for the reform bill in Congress. “There are aspects of this bill that have important fiscal implications, and so we hope that policymakers continue to build political support to advance this bill,” Julie Kozack, IMF communications director, said at a news conference in Washington on Thursday morning.
The IMF is not just a headache for the government. This Thursday, the New York judge who ordered Argentina to pay compensation to the investment funds that demanded the nationalization of the state oil company YPF rejected the Argentine request to extend the payment deadline. Argentina was ordered to pay $16,099 million in March 2023 and the new government argued that between inflation “approaching 200%”, negotiations with the IMF and the “inability to access international capital markets”. will not be able to meet demand. Judge Loretta Preska has responded that despite “sympathizing with the scale of the challenges” in Argentina, the executive branch demonstrates that it has not taken measures to address the payment and that it has no set schedule for doing so.