Argentina peso: Milei begins 'shock therapy' by devaluing currency

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LadyTevar
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Argentina peso: Milei begins 'shock therapy' by devaluing currency

Post by LadyTevar »

https://www.bbc.com/news/business-67688727

I don't think this will go like he thinks it will go.
Argentina's new government says it will weaken the value of its currency by more than 50% against the US dollar.
It is part of the "economic shock therapy" that President Javier Milei says the country needs to fix its worst crisis in decades.

Economy Minister Luis Caputo also announced deep cuts to public spending.
They include a reduction in fuel and transport subsidies and freezing spending on some major government contracts and advertising.

Mr Caputo said he had inherited the worst economic legacy in Argentina's history and he was taking steps to avoid hyperinflation.
"We are going to be worse off than before for a few months, particularly in terms of inflation. And I say that because, as the president says, it is better to tell an uncomfortable truth than a comfortable lie," Mr Caputo said in a televised address.

Argentina is battling soaring inflation, with prices rising by around 150% over the last year. It is also struggling with low cash reserves, high government debt, while 40% of the population is living below the poverty line.

The International Monetary Fund (IMF) - to which Argentina owes $44bn (£35bn) - called the measures "bold" and said they will help create the environment for private sector growth.

"I welcome the decisive measures," IMF chief Kristalina Georgieva said, adding that it is "an important step toward restoring stability and rebuilding the country's economic potential."

Mr Caputo said the exchange rate would be cut to 800 pesos to the US dollar, from roughly 391 pesos.

Since 2019, Argentina has kept its currency artificially strong by strictly controlling the movement of the currency.
That helped drive demand for the US dollar on the informal currency market, which saw the peso trading at a much lower rate that the the official level.

Mr Milei, a libertarian who rose from relative obscurity to the top office in a bitterly fought election, was sworn in on Sunday.
He campaigned on promises of major spending cuts and was known for wielding a chainsaw at rallies to depict his intentions to slash government spending.
It is not clear if his coalition, which is only the third largest bloc in the country's Congress will be able to implement enough major spending cuts needed to shore up the economy without pushing it into turmoil.

Mr Milei has already cut nine government ministries, which Mr Caputo said would reduce 34% of public sector jobs.

Speaking about the cuts to government spending for infrastructure projects, Mr Caputo said: "The reality is that there is no money to pay for more public works that, as all Argentines know, often end up in the pockets of politicians or businessmen on duty".
I realy don't think this is going to go how he thinks it's going to go. Cutting jobs is just going to leave more desperate people in poverty.
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Re: Argentina peso: Milei begins 'shock therapy' by devaluing currency

Post by Zaune »

There was a joke going around on Reddit that this Milei fellow looks rather like a hobbit. From what I'm hearing about the guy, his tenure is going to be rather reminiscent of the Scouring of the Shire...
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Re: Argentina peso: Milei begins 'shock therapy' by devaluing currency

Post by LaCroix »

On the other hand, accepting the realit and not tying to keep the exchange rate up is going to relieve pressure on state finances - at the end, a sizeable amount of money is used to stabilize the peso, which could be used for other things.

Cutting public jobs is bad, but then again, the state can use that money to put out contracts. Building roads, infrastructure, all the stuff - things that give a high turnaround because the people building roads are not saving, but spending. You can pay two road workers for each public servant you cut. So it ends up putting people with high qualifications on the jb market, where they have a chance to find jobs, and provides income for poor menial workers. These cna then buy food and stuff, which helps small businesses, etc. Then try and use that kickstart to get the economy going, putting the oil money (which is now worth twice as many pesos, at least for a short time) into these projects and get things running.

Edit - just googled it 17.2% (ILO numbers) of the total workforce is in the public sector - that's huge. About as much as a rich western country with a healthy ecnomy to support it. Most of their neighbors do have 30% less, whie NOT being in an economic crisis...

It is a tried and working technique. It's just hard and unpopular in the beginning. Orban did this to get hungary out of a looming bancrupcy (blamin the prior govenrment that these measures have to be done now), and it's why he still has that fellowship. If Milei manages to not become crooked like Orban, and starts funneling th emoney to his and his friend's pockets, it can save a country.

But then, it remains to be seen if he is a man of his word, or a talented politician...
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Re: Argentina peso: Milei begins 'shock therapy' by devaluing currency

Post by Xisiqomelir »

"There are four types of economy: Developed, developing, Japan and Argentina"
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