President Javier Milei's government launched a major devaluation of the peso on Tuesday and a host of other measures as it attempts to head off a major economic crisis.
Economy Minister Luis Caputo, speaking in a delayed pre-recorded message, said that the peso would pass to 800 per United States dollar – a devaluation of more than 50 percent.
"The official exchange rate will go to 800 pesos" to the US dollar, up from 391 pesos earlier in the day, Caputo announced as part of a raft of "shock" measures to tackle triple-digit-inflation and cut spending.
He also announced a reduction in the state's generous subsidies of fuel and transport, without saying by how much.
Caputo announced around 10 measures in total, with most dedicated to slashing government spending.
They included pre-announced steps like halving the number of government ministries and slashing secretariats. Money transfers to provincial governments (“discretionary transfers”) will also be trashed while all ongoing public works projects without external financing will be immediately suspended.
“State employment contracts which have been in force for less than a year will not be renewed," said Caputo.
Other spending cuts he announced include the suspension of all state advertising for a year – which, he said, had cost 34 billion pesos in 2023.
Subsidies for transport and energy services – huge expenditure for Argentina's government – will also be slashed, he said, without providing further details.
“This is the correct path,” declared Caputo, warning that continuing the status quo would lead Argentina into an even deeper crisis.
“We have to avoid catastrophe,” he said, due to “the worst inheritance” in the nation’s history.
Echoing the line Milei used often on the campaign trail and in his inaugural speech, the minister declared: "There is no money."
Moments before the announcement, the new Central Bank Governor Santiago Bausili summoned representatives from all the nation’s banks to a meeting scheduled for 9am Wednesday.
IMF approval
In an attempt to compensate for the loss of purchasing-power, Caputo said the government would raise child benefit and food stamp payments by 50 percent.
There was no word on any measures to protect the retired and elderly, a sector of the population which will be hit hard by the new measures.
While Caputo announced the exchange rate would slide to 800 pesos to the dollar, from about 391 in recent days, there was no immediate mention of the lifting of strict currency controls which have birthed a multitude of dollar exchanges and a thriving black-market where the dollar has sold for up to three times the official rate at times.
Argentina’s government has for years strictly controlled the exchange rate of the peso to the dollar, which analysts have derided as an expensive fiction.
The announcements won the immediate approval of the International Monetary Fund (IMF), which said the austerity was "aimed at improving public finances."
“IMF staff welcome the measures announced earlier today by Argentina’s new Economy Minister Luis Caputo. These bold initial actions aim to significantly improve public finances in a manner that protects the most vulnerable in society and strengthens the foreign exchange regime. Their decisive implementation will help stabilise the economy and set the basis for more sustainable and private-sector led growth," read a statement signed by IMF Communications Director Julie Kozack.
"IMF staff and the new Argentine authorities will work expeditiously in the period ahead. Following serious policy setbacks over the past few months, this new package provides a good foundation for further discussions to bring the existing Fund-supported programme back on track," it concluded.
'Economic disaster'
In his recorded message – which included a lengthy opening section in which Caputo tried to explain the rationale for the measures – the minister attempted to underline the severity of the “economic disaster” facing Argentina.
The minister said the country had an "addiction" to spending to more than it earns, and had posted a fiscal deficit for 113 of the past 123 years.
Consumer prices have risen by more than 140 percent over the last 12 months and more than 40 percent of the population lives below the poverty line.
“The fiscal deficit exceeds 5.5 points of gross domestic product with a Central Bank with an absolutely deteriorated balance sheet, without dollars in its assets and printing money of more than 20 points of GDP, thus causing inflation to currently sail at 300 percent per year and punish Argentines every day,” claimed Caputo.
He assured that the genesis of the problem "has always been the fiscal deficit," as he outlined the package of economic measures.
"If we continue as we are, we are inevitably heading towards hyperinflation," he declared. "What we come to do is the opposite of what has always been done... to solve this problem at root, precisely so that we do not have to suffer these consequences anymore," said Caputo.
In relation to discretionary transfers from the National State to the provinces, Caputo maintained that they will be reduced "to a minimum" and added that these are "funds which, unfortunately, in our recent history have been used as a bargaining-chip to exchange political favours".
With regard to public works, Caputo announced that "the National State will not tender any more new public works and will cancel the approved tenders whose development has not yet begun."
"The reality is that there is no money to pay for more public works which, as all Argentines know, often end up in the pockets of politicians or businessmen on duty."
Presidential Spokesman Manuel Adorni had attempted to highlight the inheritance received by the Milei administration in his daily press conference and anticipated some of the announcements, such as a complete suspension of state advertising in media outlets.
"The measures will be in line with a strong fiscal cut, with some expansion in social items and this package will be accompanied by the removal of privileges," trailed the spokesman.
Caputo's presentation was made after markets closed. Reaction is likely to come thick and fast on Wednesday morning.
Local reporting said a first take at the video had been rejected by Caputo and others in Milei's government. The video was reportedly re-recorded and eventually released two hours after initially planned.
Milei's vow
Upon taking office last Sunday, Milei vowed to introduce a set of emergency measures he argued would save the country from “hyperinflation.”
The 53-year-old libertarian and self-described "anarcho-capitalist" took office on Sunday vowing to slash public spending, warning the situation was likely to get a lot worse before it gets better.
Annual inflation is currently at 140 percent and poverty levels at 40 percent in Latin-America's third-biggest economy.
Milei has vowed to cut spending by five percent of gross domestic product and has already streamlined the government from 18 ministries to nine.
Recent governments have been heavy on intervention in prices and currency controls, welfare handouts and subsidies of fuel and transport – bus tickets cost only a few dollar cents.
During his campaign Milei's main vow was to ditch the peso for the US dollar and shut down the Central Bank.
However, with little power in Congress he has been forced to ally with members from the right-wing PRO party and has watered down some of his more fiery stances.
Milei and his government have doubled down on the message that inflation, and the general economic situation, will worsen significantly before they get better.
"We are going to be in poverty, and the situation is going to be much harder," said teacher Gabriel Álvarez, 57, reacting to the announcements.
Government’s measures
1) State labour contracts with less than one year in force will not be renewed.
2) Suspension of the state advertising budget for one year.
3) Reduction in the number of ministries and secretariats.
4) Reduction of discretionary money transfers to provincial governments (though Caputo actually said these would be reduced "to a minimum.")
5) Elimination of public works tenders and suspension of the execution of those tenders which have not yet started.
6) Reduction of energy and transport subsidies.
7) Freezing the Potenciar Trabajo work scheme expenditure
8) Official dollar exchange rate rises to 800 pesos per greenback. Increase of PAIS tax on imports and non-agricultural export duties.
9) Replacement of the SIRAs by an import system which does not require prior approval.
10) Doubling of the child allowance and a 50 percent increase in the Alimentar food card.
– TIMES/AFP/NA
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