Milei’s plan continues its course. The Government of Argentina seems to have won the first battle against inflation with its ‘shock therapy’ based on public spending cuts to balance public accounts almost overnight. The markets are beginning to significantly believe in Milei’s plan, which undoubtedly has an effect that reinforces the effectiveness of the Government’s measures. The more the price of bonds rises, the further away Argentina is from default. The further away Argentina’s default is, the stronger the peso will be and the easier it will be to win the war against inflation. For now, in the first battle, the Milei plan has proven to be a steamroller, leading the monthly CPI to fall from 25.5% at the end of 2023 to 2.7% in October.
In year-on-year terms, the consumer price index (CPI) in Argentina stood at 193% year-on-year in October, its sixth consecutive deceleration, the National Institute of Statistics and Censuses (Indec) reported this Tuesday. In the tenth month of the year, consumer prices grew by 2.7% compared to September, which implies a slowdown with respect to the monthly rate of 3.5% that had been registered in the previous month.
The monthly index for October is the lowest since November 2021, when the monthly variation was 2.5%, and is well below the rates recorded in December (25.5%) and January (20.6%) past
After the sudden devaluation of the Argentine peso ordered by the Government of Javier Milei just beginning his mandate, in December 2023, and the impact of his first ultraliberal measures, prices began a downward trend in Argentina as a result of a strong fiscal and monetary adjustment and a collapse in consumption that crushed demand. According to the official report released this Tuesday, the prices of goods had a positive variation of 2.1% last month compared to September, while services rose 4.3%, data that amounts to 179, 2% and 233.1%, respectively, in the year-on-year comparison.
This inflation data has been published almost at the same time as Argentina’s new fiscal surplus. Argentina achieved another fiscal surplus last October, chaining ten months of positive results, compared to a history of red in public accounts, as anticipated this Tuesday by the Minister of Economy, Luis Caputo.
“In October we are going to have a significant financial surplus,” said Caputo at the closing of the annual conference of the Foundation for Latin American Economic Research (FIEL), at the Buenos Aires Stock Exchange, anticipating the data that will be published this Friday. . “Argentina is the best student in the Americas. It is the only country that has a fiscal surplus today,” compared the minister. “We have done all this respecting private property, the market, without breaking contracts,” he highlighted.
The Milei steamroller
Since Javier Milei assumed the presidency of Argentina, his government has implemented a series of decisive measures with the aim of achieving a fiscal surplus, reduce country risk and gain the trust of international markets. Milei, who has repeatedly expressed his alignment with free market principles, has implemented fiscal adjustment and economic liberalization policies to restore stability in a country that has historically faced high levels of inflation and public debt. These measures, although controversial, have begun to show results, with a notable reduction in country risk, which fell to 830 basis pointssignaling greater credibility in the economic management of the new government.
One of the pillars of Milei’s strategy has been fiscal consolidation. The government implemented significant cuts in public spending, including reducing subsidies in key sectors such as energy and transportation. This adjustment, although unpopular in some sectors, has been essential to achieve the fiscal surplus. In addition, Milei’s administration has promoted a tax reform that simplifies the tax system and eliminates certain taxes that affected investment and business growth, with the aim of boosting the economy and attracting both national and foreign capital.
Another key step in Milei’s strategy has been the liberalization of price controls, also partially eliminating restrictions on access to foreign currency for companies and individuals. This liberalization has facilitated the entry of investments and has contributed to stabilizing the foreign exchange market (the peso exchange rate).which is essential in an economy that seeks to attract foreign capital. Along with this policy, the Central Bank, under the direction of a team aligned with the government’s goals, has adopted a floating exchange rate approach to improve the competitiveness of Argentine exports and reduce volatility in the foreign exchange market.
To restore investor confidence, the government has also worked to renegotiate the terms of Argentina’s external debt, achieving more favorable conditions and extended payment terms. This effort, together with the commitment to stabilize public accounts, has contributed to reducing country risk. The improvement in Argentina’s risk perception allows the country to access external financing on better terms, which is key to promoting economic development and supporting strategic productive sectors.
Together, these policies of fiscal adjustment, economic liberalization and debt restructuring have positioned Argentina on a path of economic recovery. Milei’s administration, through these measures, has sought to establish a more open and stable economy, with a macroeconomic framework that inspires confidence in the markets and encourages investment.
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