Javier Milei has taken over as president with the aim of building a new Argentina, but the delivery of the materials is delayed. The first economic measures were postponed to Tuesday; The major package of legislative reforms is expected in principle for Wednesday. Expectations have been enormous since Milei won the presidency three weeks ago, but so far it is only known that he plans to cut some $20 billion in public spending—equivalent to 5% of GDP—and that this adjustment will be made suddenly and not gradual. Where and how you will use the scissors is TBD.
“The 'There is no money' thing is not a cliché,” the presidential spokesman, Manuel Adorni, warned this Monday. “What we are finding is a truly devastating situation,” agreed the vice president, Victoria Villarruel. At the end of the first Council of Ministers, Adorni explained that the adjustment measures finalized by the Minister of Economy, Luis Caputo, will be accompanied by the elimination of privileges and an exhaustive inventory to know what resources they have. As part of it, all contracts of public employees will be reviewed in search of contracting irregularities “and 100% presence will begin to be required in the workplaces of the national public administration.”
The Argentine public sector has almost 3.5 million salaried employees, according to the latest data from the Ministry of Labor, and personnel spending represents 2.2% of GDP. In his inaugural speech on the steps of Congress, the president announced on Sunday that the bulk of the adjustment will be paid by the State, not the private sector, without giving more details.
Milei began the cuts with his Cabinet. By decree, he reduced the ministries to nine, reordered the functions of each portfolio and assigned his ministers the power to advance the privatization or closure of public companies. The oil company YPF, renationalized in 2012, Aerolíneas Argentinas and the public media are in the crosshairs. She also modified the rule that prevented hiring family members in order to appoint Karina Milei, her sister and her most trusted person, Secretary of the Presidency.
Without official definitions, all eyes were directed this Monday towards the reaction of the exchange markets after the assumption of Milei and the imminent sharp devaluation of the peso. The Peronist Alberto Fernández left office with an official price of 400 pesos per dollar, when other parallel prices oscillate close to a thousand pesos per dollar. The Minister of the Interior, Guillermo Francos, anticipated that it could depreciate to 600 or 650, while some stock market operators believe it will be closer to 700. The head of the economic portfolio, Luis Caputo, has so far avoided giving a number.
The market's response came very dampened by the virtual exchange holiday decided by the Central Bank of the Argentine Republic (BCRA). Through a statement, the monetary entity reported that this Monday the “prior compliance rule” would apply for all dollar purchases made through the single and free exchange market. In practice, the measure put a brake on operations to gain time until the replacement of the BCRA leadership materializes and the economic measures that Caputo is preparing with his team are ready.
Traders are desperate as the uncertainty spreads. “There are no prices,” is the phrase most repeated by business owners in recent days. Luisa, manager of a small clothing store, says that some suppliers have increased prices by 15% while others have increased more than 20% “to cover themselves”, that is, to avoid losing money in the event that there is a devaluation from one day to the next. She knows that when it becomes official, “something will increase again.” The owner of a neighboring delicatessen has the same concern, who understands that customers complain about how expensive everything is, but assures that he receives daily lists with increases, especially for imported foods.
The Argentine economy grew 5.2% in 2022, half that of a year before, and in this 2023 election it has stagnated while inflation soared above 142%, the highest figure in the last three decades. Milei warned this Sunday that next year will be much worse: this Sunday he predicted more hunger, more poverty and more inflation for 2024. The left, with minimal electoral weight, has decided to respond to him in the streets on December 20 with a demonstration.
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