Argentina. President Milei devalues the currency by 50 percent with a package of laws

  pressreview | December 13, 2023

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The Government is preparing a series of decrees which will be issued starting this Wednesday. President Javier Gerardo Milei devalues ​​the Argentine currency by 50 percent. The paper dollar rises to 1,320 dollars, retirements would be by decree and the decline in profits would be reversed. The International Monetary Fund appreciates it. The Argentine Minister of Economy: "For a few months things will be worse, especially for inflation, but an inconvenient truth is better than a convenient lie"

The first move of the new Argentine government led by President Javier Milei is a dizzying devaluation of the national currency. For a dollar, previously 400 pesos were enough, now they need 800.

From the International Chamber of Commerce, President Pulpan announces the decision of the Minister of Economy Luis Caputo, accompanied by "a temporary increase in the national tax on imports and withholdings on non-agricultural exports", he admits that "for a few months things will go worse than before, especially in terms of inflation, I say this because, as the President says, it is preferable to tell an inconvenient truth than a convenient lie".

Among the measures announced, in addition to the devaluation of the domestic currency, the liberalization of imports, the suspension of public administration advertising expenses, the cutting of ministries from 18 to 9 and of secretaries of state from 106 to 54, the reduction to a minimum of discretionary transfers from the national State to the Provinces, the stop to new public works and the cancellation of approved contracts whose development has not yet begun, the reduction of subsidies for energy and transport.

The Minister then attributes the blame to previous administrations: “We are certainly faced with the worst legacy in our history. A country in which Argentines are increasingly poor, with a budget deficit that exceeds 5 and a half points of GDP." The greatest risk is hyperbolic inflation, with a price run that risks reaching 15,000 percent per year.

The Treasury hopes to raise 0.8% of GDP with the increase in the PAIS tax (this tax is valid until December 2024); with additional withholding of 15% on all products, 0.5%; with a “reversal” of the wage reform, 0.4%; with recycling projects, personal property and moratorium, 0.5%. In total there are 2.2 points of the product. In relation to expenses, pensions and pensions will be reduced by 0.4% of GDP; with current transfers to the provinces an adjustment of 0.5% is made; with economic subsidies, 0.7%; capital expenditure (works), 0.7% of GDP; social programs with intermediaries and 0.4%; management and other expenses, 0.5%. Social programs without intermediaries, on the other hand, entail -0.3% of expenses, they explain. In total the cut is 2.9%.

Reducing transport and energy subsidies will maintain segmentation. We will work to concentrate these subsidies on demand and not on supply. Savings will be rewarded, no one knows in what percentage, and waste will be punished. “We will work on a redistribution of subsidies to demand”, the idea is, they explained, that the changes will begin to be seen starting from February, at the same time, rates must be updated due to the jump in prices and also the course of the dollar and, following the official times, the impact on the values ​​of services would only begin to be seen in the April CPI.

In the numbers released by Economía, a drop in spending appears like a "reversal of the earnings reform". It seems likely that there will be a step backwards with the "elimination" of the tax desired by former Minister Sergio Massa as well as competitor to the Presidency of Argentina as well as to the current President Milei.

Milei also proposes, among other things, the introduction of the dollar as the current currency. According to Klejzer, the figure of Javier Milei "is able to channel all the discontent that this society brings with it, especially among young people", who have been hit hard by the crisis. economy who "don't see a future".

Javier Milei's famous chainsaw will lead not only to a brutal decline in public spending, but also to an increase in taxes on imports (PAIS) and exports (withholdings). The fiscal anchor will be immediate and the deficit will be eliminated in one year. Added to this is that the Central Bank (BCRA) will announce a plan for commercial debt of companies and remunerated liabilities, with which it will try to contract as much as possible the amount of pesos in the economy. Furthermore, after the dollar rises to 800 dollars, the exchange rate will be almost fixed with an increase of 2% per month, then the recession will be the last stage of the program to reduce inflation which will initially increase.

The government estimates that the real commercial debt of private companies has increased this year by at least $20 billion (this is the money that has financed overseas purchases with Chinese debt). To specify this, a register will be established at the Ministry of Commerce. “A good percentage will disappear” They say of the doubts generated by the fact that some have “dithered” with the possibility of accessing a highly subsidized dollar, leveraging with the adjusted peso debt. As Diana Mondino announced at the UIA conference, they are preparing to eliminate non-automatic licenses and also SIRAs. There will be a system that will automatically approve the date for accessing the dollars.

However, they recognize the problem. For this reason, the BCRA led by Santiago Bausili will offer a menu of bonds issued by this body which will try to reactivate the flow of purchases abroad. “Some importers need cash to release shipments,” they explained. It would be a financial maneuver with a "bonus" for those who stay longer. They think of a bonus in pesos, so it is thought that it will contribute to a strong monetary tightening to eliminate circulating pesos. “It will help us reverse the nominal run,” estimates the economic team, and add, it will put an end to the monetary issue to finance the deficit, and not the “Leliq ball”, which has a life of its own.

A positive reaction, says Pulpan, from the International Chamber of Commerce came from the International Monetary Fund, which said it "welcomes the measures announced", speaking of "courageous actions that aim to significantly improve public finances in order to protect the most vulnerable and strengthen the exchange rate regime. Their decisive implementation will help stabilize the economy and establish the foundations for more sustainable, private sector-led growth."

 

December 13, 2023 – quotedblanacion