2023-12-13 14:03:59
The government of ultra-liberal Javier Milei devalued the currency by more than 50% on Tuesday, establishing the official exchange rate at 800 pesos per dollar compared to 391 at the close of Thursday, as announced by the Minister of Economy, Luis Caputo, who warned that Argentina is at risk of hyperinflation.
“The genesis of our problems has always been fiscal,” emphasized the minister, who maintained that the country must solve its “addiction” to the deficit in public finances, by announcing that subsidies for energy and transportation, among others, will be reduced. austerity measures following Milei’s inauguration on Sunday.
WATCH: LIVE | Luis Caputo announces the economic measures of the Milei Government in Argentina
“If we continue as we are, we are inevitably on the path to hyperinflation,” he warned.
Argentina is suffering a serious economic crisis, with annualized inflation of more than 140% and a poverty rate that exceeds 40% of the population.
Argentina’s new president, Javier Milei, delivers his inaugural speech to the crowd outside Congress in Buenos Aires on December 10, 2023. (Photo by Luis ROBAYO/AFP).
/ LUIS ROBAYO
“The official exchange rate is going to be worth 800 pesos, so that the productive sectors really have the appropriate incentives to increase production,” Caputo said in a previously recorded speech.
For now, the government maintains the currency control system that has been in effect since 2019, with a dozen different exchange rates.
LOOK: Argentina: Milei Government announces that it will reduce energy and transportation subsidies
Milei, a 53-year-old economist who during the campaign brandished a chainsaw to symbolize his idea of cutting public spending, took office on Sunday and assured that the country needs a “shock” treatment to overcome the crisis, and ruled out any “ gradualism”. The president proposes to make a fiscal adjustment equivalent to 5% of the Gross Domestic Product.
“Today the State artificially maintains very low prices in energy and transportation rates through these subsidies,” said the minister, referring to the money that the public treasury spends on maintaining reduced prices for various consumer items.
“But these subsidies are not free, but are paid with inflation. What they give you in the price of the ticket they charge you with the increases in the supermarket. And with inflation, it is the poor who end up financing the rich,” Caputo said.
The austerity measures include reducing the size of the State, and the paralysis of publicly funded infrastructure work initiatives that have not yet begun. From now on, Caputo explained, public works will be financed with private funds.
This illustration shows a 100 dollar bill on top of Argentine pesos, in Buenos Aires on October 10, 2023. (Photo by Luis ROBAYO/AFP).
/ LUIS ROBAYO
These are the measures listed by Caputo:
- State labor contracts that are less than one year old are not renewed.
- Suspension of for one year. (Caputo said that 34 billion pesos were spent on in one year).
- The ministries are reduced from 18 to 9 and the secretaries of State, from 106 to 54.
- Reduce to a minimum “discretionary transfers from the national State to the provinces.”
- The national State will no longer tender new public works and will cancel approved tenders “whose development has not yet begun.”
- Reduce energy and transportation subsidies.
- Maintain the Enhance Work plans according to what is established in the 2023 budget but with changes. He promised that the social plans will be “directly by those who need them, without intermediaries, such as the AUH and the Alimentar card.”
- Confirm the official exchange rate.
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