1 of 1 Argentine Peso Banknotes: Cumulative inflation reached 148.2% in 2023. — Photo: Natacha Pisarenko/AP Argentine peso banknotes: Cumulative inflation reached 148.2% in 2023. — Photo: Natacha Pisarenko/AP
Inflation in Argentina reached 160.9% in the last 12 months, the country's statistics institute announced this Wednesday (13). November results show consumer prices rose 12.8% this month, compared to 8.3% in October.
The sectors with the largest increases last month were healthcare (15.9%), food and nonalcoholic beverages (15.7%) and communications (15.2%).
Cumulative inflation in 2023 is 148.2%, the highest annual result since the hyperinflation of 1990, when the year ended above 1,300%.
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 measures aim to restore Argentina's public finances. In his inaugural speech on Sunday (10), Milei said that “there is no money” in the country and called on the population to prepare for difficult times before the situation improves.
Economists have heard of the g1 indicate that Milei's fiscal adjustment should actually follow the path of worsening inflation and activity rates, but they are part of a path to reducing the country's deficit and accumulating international reserves.
With the end of public subsidies, a depreciation of the peso exchange rate against the dollar and the liberalization of prices of basic goods expected, inflation tends to gain strength in the coming months.
Milei's government announces measures to cut spending and devalue the peso
Chainsaw plan summary
1. Devaluation of the peso: 1 US dollar becomes 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. Tenders: Suspend new public construction tenders and cancel tenders that have not yet begun.
- 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. Reducing energy and transportation 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 praise the advertising “virtues of the current government”.
6. Public bodies: 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. Reduction in 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.