Argentina chainsaw plan revealed: deep cuts, record devaluation

Economy Minister Luis Caputo announced a series of measures and warned that inflation is going up in the coming months

FILE PHOTO: Argentina's Minister of Economy Luis Caputo speaks to the press, one day after the inauguration of Argentina's President Javier Milei, in Buenos Aires, Argentina, December 11, 2023. REUTERS/Agustin Marcarian/File Photo

Argentina’s Economy Minister Luis Caputo announced ten substantial austerity measures on Tuesday evening, revealing that the government will devalue the peso by a record 54%, taking the official dollar exchange rate to AR$800. It is the steepest devaluation of the peso since 2002 when the Argentine currency plummeted by 380 percentage points after the 2001 socioeconomic crisis.

The decision was part of a package mostly consisting of government cuts the minister said were to “neutralize the crisis and stabilize economic variables.”

“In order to stop suffering from inflation and poverty, it is essential to solve our addiction to fiscal deficit,” Caputo said in a pre-recorded message, filmed twice in the Economy Ministry earlier on Tuesday. “There is no money,” he repeated several times, echoing President Javier Milei’s words in recent speeches.

The official dollar exchange rate closed on Tuesday at AR$366, but some banks were selling it closer to AR$500 or AR$700 for some operations. 

Caputo said the devaluation — which constitutes a 118% exchange rate jump — was so that the agribusiness and industrial sectors truly have “the appropriate incentives to increase production.” There will also be a temporary increase in the country’s tax on imports and export duties on non-agricultural exports.

Milei took office on Sunday after being elected with a platform that said that his austerity measures would only affect the “political caste.” However, in his inauguration speech, the President said the adjustment would “fall almost entirely on the state.”

After halving Argentina’s number of ministries and secretariats on Tuesday morning, the Economy Minister’s message also revealed that contracts for state employees who have less than one year of seniority will not be renewed.

The minister also said the government would reduce transportation subsidies in the Buenos Aires Metropolitan Area. The minister said that those subsidies constitute an “act of profound discrimination against the provinces” so the government would eliminate them, but did not clarify if other provinces would keep receiving similar subsidies. Energy subsidies will be cut nationwide.

“These subsidies are not free but are paid for with inflation,” he said.

Caputo also revealed the elimination of “discretionary transfers” from the national government to provinces, all public works — even those that had already been approved but not yet started — and state advertising (for one year). Argentina’s importing system SIRA will also replaced, heavily criticized as a bureaucratic obstacle.

The minister said that the Potenciar Trabajo welfare program will continue as established in the 2023 Budget, meaning it will be frozen at the current value. As a last “social measure” to complement the first nine, Caputo also said that the Universal Child Allowance will be doubled and the Food Card will increase by 50%.

“For some months, we are going to be worse than before, particularly in terms of inflation,” he said.

The culprit and the filmmaker

During his speech, Caputo said that the fiscal deficit was the root of all of Argentina’s economic problems. He also pinned the upcoming crisis on the previous administration. “We are definitely facing the worst inheritance of our history,” he said.

“If we continue as we are, we are inevitably on the road to hyperinflation,” he said. “We could, as the president said in his speech, reach levels of 15,000% per year.”

The International Monetary Fund (IMF) welcomed Tuesday’s measures. “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,” IMF head Kristalina Georgieva said on X (formerly Twitter). 

“Their decisive implementation will help stabilize the economy and set the basis for more sustainable and private-sector led growth.” Giorgieva said the package provides a “good foundation” for further discussions to bring the IMF program “back on track.”

On Wednesday, Central Bank authorities will meet with representatives of the country’s banks to further explain the measures.

Caputo’s original message, recorded by the ministry’s press team, was scheduled to be uploaded onto Milei’s YouTube account at 5:30 p.m. However, the government house’s press team saw it and asked it to be re-recorded. The second version was filmed by Milei’s usual filmmaker Santiago Oría without input from the ministry and published at 07:15 p.m. A person who saw both versions told the Herald that the only difference was the mise-en-scène.

The list of measures includes: 

  1. Non-renewal of state employment contracts under a year
  2. A year-long suspension of state advertising
  3. Reducing ministries and secretariats by 50% and 34% respectively
  4. Reducing “discretionary transfers” from the national state to provinces
  5. The government will not put new public works out to bid and will cancel those that have been put out to bid and have not yet started
  6. Reduction of subsidies to energy and transportation, especially in the Buenos Aires Metropolitan Area transportation
  7. Welfare programs stipulated in the 2023 budget will be maintained and intermediaries will be eliminated
  8. The official exchange will be worth $800. Provisional increase of tax on imports and export duties on non-agricultural exports
  9. The SIRA import system will be replaced by a statistical system without previous licenses
  10. The Universal Child Allowance social program will be doubled and the Food Card will be increased by 50%


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