Argentina has announced a sharp devaluation of its currency and cuts to government subsidies as part of shock measures aimed at turning around the country’s flagging economy.
Luis Caputo, Argentina’s economy minister, said in a televised message the Argentine peso will be devalued by 50 percent to 800 to the US dollar from 400 pesos to the dollar. He said: “For a few months, we’re going to be worse than before.”
The shock move comes two days after Javier Milei was sworn in as president of the second-largest economy in South America and immediately warned of tough measures.
Argentina is suffering 143 percent annual inflation; its currency has plunged and four in 10 Argentines are impoverished.
The nation also has a yawning fiscal deficit, a trade deficit of £34.3billion ($43bn), a daunting £35.9bn ($45bn) debt with the International Monetary Fund (IMF) and £8.4bn ($10.6bn) due to be paid back to multilateral and private creditors in April.
As part of the new measures, Mr Caputo said the government will cancel tenders of any public works projects and cut some state jobs to shrink the size of the state.
He also announced cuts to energy and transport subsidies without providing details or saying by how much, adding Mr Milei’s administration is reducing the number of ministries from 18 to nine.
Mr Caputo said the measures are needed to cut the fiscal deficit he believes is the cause of the country’s economic problems, including raging inflation.
He said: “If we continue as we are, we are inevitably heading toward hyperinflation. Our mission is to avoid a catastrophe.”
The IMF welcomed the measures, saying they provide “a good foundation” for further discussions with Argentina about its debt with the institution.
IMF spokesperson Julie Kozack said in a statement: “These bold initial actions aim to significantly improve public finances in a manner that protects the most vulnerable in society and strengthen the foreign exchange regime.
“Their decisive implementation will help stabilize the economy and set the basis for more sustainable and private-sector led growth.”
Major figures in the former Peronist government of Alberto Fernández didn’t comment on the measures announced on Tuesday (December 12).
But social leader Juan Grabois, who is close to former centre-left president Cristina Fernández (2007-2015), said Mr Caputo had announced “a social murder without flinching like a psychopath about to massacre his defenseless victims”.
He said: “Your salary in the private sector, in the public sector, in the popular, social and solidarity economy, in the cooperative or informal sector, for retirees and pensioners, will get you half in the supermarket.
“Do you really think that people are not going to protest?”
The slogan “There’s no money”, has been a frequent refrain in Mr Milei’s speeches, as he used it to explain why a gradualist approach to the situation is a non-starter.
But he has promised the adjustment will almost entirely affect the state rather than the private sector and that it represented the first step toward regaining prosperity.
Mr Milei, 53, rose to fame on television with profanity-laden tirades against what he called the political caste. He parlayed his popularity into a congressional seat and then, just as swiftly, into a presidential run.
The overwhelming victory of the self-declared “anarcho-capitalist” in the primaries sent shock waves through the political landscape and upended the race.
Argentines disillusioned with the economic status quo proved receptive to an outsider’s outlandish ideas to remedy their woes and transform the nation.
He won the election’s second round decisively and sent the Peronist political force that dominated Argentina for decades packing.
But he is likely to encounter fierce opposition from the Peronist movement’s lawmakers and the unions it controls, whose members have said they refuse to lose wages.
