The Government of ultra Javier Milei has begun the open-hearted operation of the Argentine economy and the country awaits the consequences. The most visible, 24 hours later, are a rapid rise in prices, up to 100%, and the calm reaction of the markets. There is a consensus among economists that the situation is critical and requires a fiscal adjustment, although they show some differences on the measures taken to carry it out. The unions and social movements, on the contrary, warn that the chosen course will ruin Argentines and have called emergency meetings to debate responses.
“We have found a patient in intensive care about to die. We are not willing for him to die,” the presidential spokesman, Manuel Adorni, argued this Wednesday at the new Government's daily press conference. This is how this Administration justifies a package of measures that it considers “necessary and inevitable” and about which it has not yet offered all the details. “We need credibility [internacional] and you can't get it by spending more than you have. It is not negotiable,” Adorni concluded, adding that the package is only “the backdrop” for more measures that will be announced “in the coming weeks” and that will be, he said, “really profound.”
“The immediate consequence of the measures is, without a doubt, a strong increase in inflation,” warns economist Juan Manuel Telechea. Inflation in November was 12.8%, but that figure is already short. Between Monday and Wednesday, the price of meat has increased by more than 40% and the price of international plane tickets has doubled. Speculation is total and there are still businesses that are not selling because they are updating prices, while others warn that today's budget may not be valid for tomorrow.
A new option, which has gained strength in recent months, has been covert dollarization. The best-known case is that of rentals: the supply is very scarce and the little that is on the market is attempted to be negotiated in dollars outside the law. But this formula extends into new fields as the value of the peso collapses. A tooth extraction, not covered by basic health insurance, costs around $400. Customers can pay in US currency or, alternatively, in pesos at the parallel exchange rate of the day. This Wednesday that price was 1,070 pesos per dollar, 30% higher than the official one.
In the emergency package announced by the Minister of Economy, Luis Caputo, the strongest blow was the official devaluation of the peso by 51%: from 400 pesos per dollar to 820 pesos. There were also announcements aimed at cutting public spending with which they hope to save almost three points of GDP: paralysis of public works, increase in pensions by decree, reduction of subsidies for transportation and energy and transfers of national funds to the provinces. and suspension of official advertising, among others.
Although Milei promised during the campaign that he would not raise taxes, he has backed down. Imports will pay a tax of 17.5%, there will be new withholdings on exports and the change in income tax (known in Argentina as profit tax) promoted by Peronism for electoral purposes will be revoked in the final stretch of presidential campaign. With these measures he trusts in an increase in income of 2.2 points, which, added to the expected cut, completes the planned 5% adjustment of GDP.
The economist Telechea believes that in the coming months inflation will be between 30% and 40% monthly, given the magnitude of the devaluation. If this is the case, he warns, the increases in social aid announced for the most vulnerable sectors will be “very insufficient” both due to the amount and the difficulty of the State in reaching those who work in the most absolute informality. 40.1% of the Argentine population is poor and 9.3% is indigent, that is, their income is not enough to buy food.
“The megadevaluation that is being carried out is worrying because it may have a hyperinflationary resolution,” says economist Pato Laterra, professor at the National University of La Plata. The economist also believes that the lack of price control measures in the plan aggravates this scenario: “In recent weeks, since the runoff [segunda vuelta de las presidenciales]prices have risen 50% and they will continue to rise.”
Stable markets
The International Monetary Fund (IMF) applauded the measures. They also seemed to please the markets, which operated without major shocks this Wednesday. The price of the parallel dollar remained stable and those known as financial dollars that companies resort to to obtain foreign exchange had advances of less than 3%. The Central Bank of the Argentine Republic maintained interest rates at 133%.
Emiliano Libman, researcher at the National Scientific and Technical Research Council (Conicet) and Fundar, believes that it will be important to see “the political and social sustainability” of the plan. “We must keep in mind that things are not going to turn out as they are on paper,” he warns, and explains: “This is the first round of the package: prices are going to rise, you are going to have more inflation in December, in January, in February… And then there will come a response from those who lost income, the workers and the social movements. It is a mystery to me how that dynamic is going to unfold.”
Milei assured that the bulk of the cut was going to be paid by the breed policy, but the measures show that this will not be the case. “It is nonsense to say that the adjustment will be made by caste. It's symbolic,” says Libman. “Obviously, it is not [en el plan de ajuste]. It's impossible because they don't give the numbers. You cannot solve Argentina's fiscal problem like this. It is good that there is a symbolic cut in games, but it does not move the ammeter,” he adds. According to this economist, Argentina was in such a delicate situation that it was very difficult to imagine a horizon for the next few months in which there would not be some drop in income,” but he celebrates that the measures are much more realistic than those he promised during the campaign. such as the dollarization of the economy and the closure of the central bank.
The opposition awaits the fine details of the economic measures and the large package of legislative reforms promised by the Government before giving a public opinion. Until now, the most critical voice has been that of unions and social movements. The main labor union in Argentina, the General Confederation of Labor (CGT), called an emergency meeting this Wednesday to analyze the measures and analyze how they respond to a painful adjustment plan that will fall on the backs of the working class. “A total social tsunami is coming,” warned the secretary of the construction union, Gerardo Martínez. This sector will be one of the most affected by the stoppage of public works, on which nearly 400,000 people depend.
Trade unionist Hugo Godoy accused Caputo of “exaggerating the inherited crisis situation to justify inadmissible measures, which will increase poverty levels in Argentina above 50% in a matter of days.” Godoy considered that the announced measures will have a strong impact on small and medium-sized businesses and will represent a “industricidewith the consequent loss of jobs.”
The therapy of shock implemented by Milei brings to the memory of Argentines other previous interventions, such as surgery without anesthesia imposed by the neoliberal Carlos Menem in the nineties. Then, as now, the Argentine economy was in a critical situation. The only certainty that both parties have is that the operation will be long and painful.
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