President-elect Javier Milei has promised economic shock therapy to balance Argentina’s budget next year in an effort to avoid hyperinflation.
Fresh off his landslide election win last weekend, Milei reiterated this week that he will drastically cut government spending because “there’s no money.”
Failure to do so would further boost consumer prices that are already soaring more than 140 percent a year, their fastest pace since the early 1990s, he warned.
“If we don’t do the fiscal adjustment, we’re going to hyperinflation,” the La Libertad Avanza leader said in an extensive radio interview. “I’m going to do a shock adjustment.”
Milei provided few details of how he would balance the budget, saying his still-unnamed economic team would tackle the Central Bank’s balance sheet of short-term debt. He added that interest payments on peso bonds made by the monetary institution amount to 10 percentage points of gross domestic product.
Milei also insisted that spending cuts wouldn’t affect ordinary citizens but rather the political class and its allies. He indicated that public works projects would need private capital.
The president-elect met Tuesday with outgoing President Alberto Fernández at the official residence on the outskirts of the capital to start the government transition. He said he joked with Fernandez about becoming the next “tenant” at the property, but then didn’t spare his administration of criticism, saying its excessive spending “planted hyperinflation.”
“There’s a very clear mandate,” Milei said in the interview. “My commitment to Argentines is to exterminate inflation.”
If not, he argued, Argentina would end up like Venezuela.
The libertarian lawmaker won a resounding victory in last Sunday's presidential election, trouncing Economy Minister Sergio Massa by 12 points with a pledge to end decades of unbridled state spending and "end the decline of Argentina."
Inflation target
Earlier in the week, Milei said that it could take between 18 and 24 months to bring rampant inflation under control.
"First, we will start with the reform of the state, to very quickly put public accounts in order," the libertarian economist told Radio Mitre.
In a series of morning radio interviews to lay out his vision, he said he had a "clear plan" to tackle annual inflation that has hit 143 percent and a poverty rate of 40 percent.
During the campaign, Milei vowed to ditch the ailing peso for the US dollar and get rid of the Central Bank, which he accuses of fuelling inflation by printing money to finance government overspending.
"The empirical evidence for the Argentine case says that if you cut monetary emission today, it takes between 18 and 24 months to destroy [inflation]," he said.
"Closing the Central Bank is a moral obligation. Dollarisation is to get rid of the BCRA [Central Bank]. We propose that the currency should be the one chosen by individuals," he said. "Argentina is in an extremely delicate situation and we are with the best professionals to rebuild the country."
However, reports on Thursday suggested that dollarisation plans had been put on the back-burner until other pressing issues were resolved.
On his plans to reform the government, Milei said "everything that can be in the hands of the private sector is going to be in the hands of the private sector," including the state oil company YPF and state media.
He said he would push for the elimination of strict currency exchange controls – with analysts saying the official rate of the peso to the dollar is an expensive fiction. However, Milei said he would first seek to resolve the Leliqs note debt issued by the Central Bank.
"It is not possible to solve the problem of the exchange-rate cepo if the problem of the Leliqs is not solved. It is the other side of the coin," Milei told Radio Rivadavia.
"If the problem of the Central Bank is not resolved, the shadow of hyperinflation will follow us at all times," he said.
– BLOOMBERG/TIMES/AFP/NA
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