Argentina’s new head of state Milei had already announced “shock therapy”. Now his government is devaluing the national currency, the peso, by more than 50 percent. In addition, a tough austerity program should be implemented.
The government of the new Argentine President Javier Milei is devaluing the national currency, the peso, by more than 50 percent. Economy Minister Luis Caputo said in a televised address that the official exchange rate would be 800 pesos to the dollar. Most recently, one dollar was worth 391 pesos. The devaluation of the national currency will give the productive sector “appropriate incentives” to ramp up production, said the economics minister.
No new construction contracts from the state
Caputo also announced cuts to energy and transportation subsidies. The state is keeping prices in these sectors artificially low through subsidies, the minister said. “But these subsidies are not free, we pay for them with inflation.” Caputo warned: “If we continue as we are, we are inevitably heading towards hyperinflation.”
The minister also announced that no more new public works contracts should be awarded. Contracts that have already been awarded and whose implementation has not yet begun should be canceled. The transfer payments to the provinces are therefore reduced to a minimum.
Infrastructure projects should be borne by the private sector in the future, said Caputo. In public projects, the money would often end up “in the pockets of politicians” anyway. Fundamentally, the Argentine state must overcome its “addiction” to spending more money than it earns, said Caputo.
Radical demands in the election campaign
President Milei was defended on Sunday as Argentina’s new president. The right-wing populist won the election with radical demands for an economic and political turnaround. Given the empty state coffers, “shock therapy” is unavoidable, the right-wing populist said during the election campaign.
He announced that he would introduce the US dollar as legal tender, abolish the central bank and many ministries and drastically cut social spending. His tone has now become significantly more moderate, but he also announced painful austerity measures on the day he took office.
Many people live in poverty
Argentina is in a serious economic crisis. The inflation rate is over 140 percent, and around 40 percent of people in the once rich country live below the poverty line. South America’s second largest economy suffers from a bloated state apparatus, low industrial productivity and a large shadow economy that deprives the state of a lot of tax revenue. The national currency, the peso, continues to lose value against the US dollar and the mountain of debt is constantly growing.
Anne Herrberg, ARD Rio de Janeiro, tagesschau, December 13th, 2023 8:33 a.m