A fiscal adjustment and the end of monetary issuance are part of the economic plan announced this Sunday (10) by the new president of Argentina, Javier Milei, in his first speech after taking office.
Milei also highlighted that “stagflation” – a condition that combines stagnant economic growth and high rates of unemployment and inflation – will be “the last blow before Argentina’s reconstruction.”
“Unfortunately, I have to repeat: there is no money. The conclusion is that there is no alternative to adjustment and there is no alternative to shock,” declared the libertarian when speaking to a crowd at the doors of the Argentine Congress.
The new president admitted that the “shock plan” he will implement will have a negative impact on the level of activity, employment, real wages and the rate of poverty and indigence. “There will be stagflation, it is true, but it is not very different from what has happened in the last two years,” he said.
Milei highlighted that the “inheritance” left by Kirchnerism is the worst that an Argentine government has ever received, with a financial and fiscal deficit equivalent to 17% of GDP, inflation that grows at an annual rate of 300%, paralyzed economic activity, a poverty rate of 45% and a misery rate close to 10%.
For these reasons, he ratified that he will apply a fiscal adjustment of 5% of GDP which, as he promised, will fall “almost entirely” on the State and not on the private sector.
Furthermore, he confirmed that he will “clean up” the Central Bank's liabilities and end monetary issuance which, he insisted, is the cause of Argentina's high inflation. In this sense, he also said that monetary policy works with a lag of between 18 and 24 months, which is why he anticipated that inflation will remain high, and cited prognoses from private entities that project monthly rates between 20% and 40%, in the period that runs from December to next February.
Milei painted a delicate fiscal and monetary scenario that, in his assessment, puts Argentina on the brink of hyperinflation, which could reach 15,000% per year. “This is the legacy they leave us: a planted inflation of 15,000% per year, which we will fight tooth and nail to eradicate”, she assured.
“It is our highest priority to make every possible effort to avoid such a catastrophe, which would take poverty above 90% and destitution above 50%”, he added.
Milei also warned about the “inheritance” in terms of debt: US$30 billion in debt with importers; US$10 billion of retained profits from foreign companies; US$25 billion of Central Bank debt and US$35 billion of Treasury debt. “The bomb in terms of debt amounts to US$100 billion (R$493.1 billion), which will have to be added to the almost US$420 billion (R$2 trillion) of already existing debt,” she warned.
To these are added the maturities in 2024 of sovereign debt issued in pesos for the equivalent of around US$90 billion (R$443 billion), plus maturities with multilateral organizations in the amount of US$25 billion (R$123 billion) . “With financial markets closed and the agreement with the International Monetary Fund (IMF) collapsed due to the brutal non-compliances of the government at the end of its term, debt rollover is extremely challenging,” he acknowledged.
Despite the panorama described, Milei stated that, after the “macroeconomic readjustment”, Argentina's situation will begin to improve. “There will be light at the end of the path,” she promised. (With EFE Agency)
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