Argentina: Milei’s economic revolution commences with sudden currency devaluation

Argentina: Milei’s economic revolution commences with sudden currency devaluation
Javier Milei

The new Argentine government, led by President Javier Milei, made a bold move by announcing a dramatic devaluation of the national currency. The decision was accompanied by a temporary increase in national import taxes and withholding taxes on non-agricultural exports. The Minister of Economy, Luis Caputo, presented these measures in a recorded video message, openly acknowledging that “for a few months things will be worse than before, especially in terms of inflation”. He emphasized that, despite initial difficulties, it is preferable to face an uncomfortable truth rather than live in the illusion of a comfortable situation.

A drastic devaluation of the currency

The devaluation hit the Argentine currency hard, bringing the exchange rate from 400 pesos to a dollar to 800 pesos to a dollar. This move represents an attempt by the government to address the economic crisis that has plagued the country in recent years. Argentina has been marked by a budget deficit exceeding 5.5% of GDP, an erosion of the population’s wealth and growing poverty.

Extended austerity measures

In addition to the devaluation, the Argentine government has announced a series of austerity measures aimed at rebalancing public finances. These measures include the liberalization of imports, the suspension of public administration advertising expenditure, the drastic reduction in the number of ministries from 18 to 9 and secretaries of state from 106 to 54. Furthermore, transfers from the national state to Provinces and new public works projects have been blocked, with the cancellation of contracts already approved but not yet started. Finally, subsidies for energy and transport have been reduced.

The sins of the previous administration

Economy Minister Luis Caputo blamed the difficult economic situation on previous administrations. He highlighted the dramatic budget deficit and rising poverty in the nation. Inflation has become a critical issue, with the risk of reaching annual rates of 15,000%.

Support from the International Monetary Fund

Despite the challenges, the International Monetary Fund (IMF) welcomed the measures announced by the Argentine government. The IMF praised these bold actions, saying they aim to significantly improve public finances and protect the most vulnerable sectors of society. The effective implementation of these measures is seen as an important step to stabilize the Argentine economy and promote more sustainable growth led by the private sector.

The Future of Argentina under the new government

The Argentine government has launched an ambitious economic reform plan, which aims to end the crisis and restore the country’s financial stability. However, the success of these measures remains uncertain, and the Argentine population will face further economic challenges in the coming months.