Argentina has decreased the value of its currency, the peso, by over 50% as a component of a set of extensive budget reductions aimed at tackling the nation’s severe economic turmoil in recent years.
The new administration led by Javier Milei has proposed plans to eliminate energy subsidies and terminate public works tenders.
The economy minister, Luis Caputo, announced on live television after the local markets closed on Tuesday that the official exchange rate would be lowered to 800 pesos per dollar, down from 366.5. He also stated that the central bank would aim for a 2% monthly devaluation.
Caputo stated that the actions, which were positively received by the International Monetary Fund (IMF), would be uncomfortable in the immediate future but were necessary to reduce the nation’s fiscal shortfall and decrease extremely high inflation rates.
On Wednesday, the central bank of Argentina will release updates on their monetary actions.
Caputo stated in a recorded speech that the goal is to prevent disaster and restore the economy, as there is no additional funds available.
He stated that the nation must address a significant fiscal shortfall of 5.5% of the total domestic output, stating that Argentina has a long history of “addiction” to deficits with 113 occurrences in the past 123 years.
The speaker stated that we must address the issue at its core in order to solve it. This requires us to overcome our dependence on a fiscal deficit.
The South American country, a large grain producer, has an inflation rate nearing 150%, central bank reserves deep in the red and two-fifths of the population in poverty. Other measures announced include halving the number of government ministries.
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Argentina currently holds a loan of $44 billion from the International Monetary Fund (IMF).
Kristalina Georgieva, the managing director of the IMF, expressed her approval of the decisive actions taken and deemed it a crucial move in restoring stability and revitalizing the country’s economic capacity.
The IMF praised the actions as “courageous” and stated that they will “aid in stabilizing the economy and establishing a foundation for long-term, private sector-driven growth” following “significant policy challenges” in recent times.
On Tuesday, the foreign exchange and grains markets in Argentina were restricted while traders anticipated the new government’s economic strategy. It was widely expected that there would be a significant devaluation, leading some banks to adjust their foreign exchange rate to 700 pesos per dollar.
Since 2019, the value of the Argentinian peso has been artificially inflated due to strict capital controls. This has resulted in a significant difference between the official exchange rate of 366 pesos per dollar and unofficial rates that can go as high as 1,000 pesos per dollar.
Caputo stated in his speech that our approach has consistently been to address the outcomes rather than the underlying issue, which ultimately puts us in a worse position. He also pointed out that our current strategy goes against the traditional method of tackling the source of the problem.
Source: theguardian.com
