Argentina: Milei's Package Includes Sharp Currency Devaluation

On Thursday, President Javier Milei's administration announced that the official nominal value of the Argentine currency with respect to the U.S. dollar goes from 400 to 800 pesos per dollar.

RELATED: 

Argentina: Javier Milei Assumes As New President

In a prerecorded message, Economy Minister Luis Caputo presented the following 10 emergency measures:

1. State labor contracts with less than one year of validity will not be renewed.

2. Government national advertising in the media will be suspended for one year.

3. The number of ministries is reduced from 18 to 9, and the number of secretariats from 106 to 54, allowing for a 50 percent reduction in hierarchical positions in public administration and a 34 percent reduction in political positions in the national government.

4. State transfers to provinces will be minimized.

5. The national government will not tender new public works and will cancel approved tenders whose development has not yet begun. Infrastructure projects will be undertaken by the private sector.

6. Subsidies for energy and transportation will be minimized.

7. The official exchange rate moves from 400 to 800 Argentine pesos per U.S. dollar.

8. The current import regulation system will be replaced by a statistical system that does not require prior state approval of licenses.

9. Public assistance programs for the unemployed will be maintained.

10. The amount of the "Universal Child Allowance" will be doubled, and the amount of the "Food Card" will be increased by 50 percent.

In justifying the severe contraction of public investment and monetary devaluation, Caputo argued, "If we continue as we are, we are inevitably heading towards hyperinflation," which could reach an annual rate of 15,000 percent.

For Milei, the current Argentine macroeconomic problem stems from a public deficit financed by monetary emission that produces inflation and must be solved "at its root" through the restoration of fiscal balance.

The emergency package aims to "neutralize the crisis and achieve the stabilization of economic variables," said Caputo, who believes the new official exchange rate will provide "adequate incentives for industrialists and exporters to increase production."

With monetary reserves at critical levels, the Milei administration's objective seems to be to encourage the inflow of foreign currency through exports.

In order to do so, Caputo also announced a temporary increase in import taxes and export duties on non-agricultural products.

However, there were no announcements about the multiple exchange restrictions that Milei promised to lift during the campaign or how the government will address the heavy liabilities of the Argentine Central Bank.

"We will be worse off than before in terms of inflation for a few months," Caputo admitted, echoing promises previously made by the far-right President Milei.