In the midst of great market expectations, the enthusiasm of those who believe in the promises of Javier Milei and a fear of apocalyptic overtones among Argentines who did not vote for it, the far-right Government announced its shock plan with which it will try to reestablish the economy of this country and get rid, according to the presidential words, of the “collectivism”. The program was communicated by the Minister of Economy, Luis Caputo at 5 p.m. local. He “chainsaw plan” contemplates a draconian fiscal adjustment that seeks to achieve zero deficit in the medium term, a strong devaluation of the pesothe local currency, 118%, the liberalization of fuel and public transportation prices, electricity, gas and water rates, the private health system and consumer products. An unrestricted opening of imports will also be promoted, a reduction of ministries from 18 to nine and of money to the provinces, and a strengthening of social policies without political intermediaries for those who will suffer the economic tsunami. Salaries, it was admitted, will be pulverized.
“We are facing the worst inheritance in history, with a fiscal deficit of 5% of GDP and a Central Bank without dollars, and inflation that punishes Argentines every day. If we continue as we are we are heading towards hyperinflation. Our mission is to avoid this catastrophe,” Caputo said. “The big problem is the fiscal deficit: we spend more than we collect. We have never solved the problem. We are addicted to deficit and that is why we fall into recurring crises and look for false culprits over 100 years. What we have come to do is solve this at its roots.” Before the television intervention, 100% increases in food prices were reported. The Foreign Minister and economist, Diana Mondino, ruled out government intervention to stop the predicted price stampede. “The value will be what the market decides“.
Caputo appreciated Milei’s courage in starting the program. “A candidate comes to government who explains this and people vote for him. We are facing a historic opportunity because he managed to make society understand that there is no more money.” The minister did not hesitate to recognize that very difficult days are coming. “We are going to be worse than before for a few months. It is better to tell an uncomfortable truth than a comfortable lie. The president asked us to focus on those who suffer the most. “We are going to double the food and money assistance plans for families.”
While Caputo explained the scope of his measures, the president participated in the traditional Chabad Jewish Hanukkah celebration in a temple in a charming area of the capital. “We know that the forces of heaven are going to support Argentina and above all, they are going to support Isral at this time. Thank you very much and long live freedom, damn it!”
IMF support
The International Monetary Fund (IMF), Argentina’s creditor since 2018, when it lent President Mauricio Macri $45 billion, which had to be refinanced by the outgoing Government under unfavorable conditions, came out to support the “chainsaw plan.” According to the organization “These strong initial actions aim to significantly improve public finances in a way that protects the most vulnerable in society and strengthens the exchange rate regime. The “determined application” by the Government “will contribute to stabilizing the economy and laying the foundations for more sustainable growth led by the private sector.
The bitter pill
Milei had anticipated last Sunday that “there is no alternative” to an adjustment of this nature. The “bitter pill” does not fall on the “political caste”, so demonized in campaign days, but on the State fundamentally and, as anticipated, Caputo himself will initially cause greater poverty, unemployment, recession and inflation that in 2024 could be higher than 222%, according to Latin Focus Consensus. For the president, that is the only effective medicine to see a “light” at the end of the tunnel. The new president did nothing more than gloss the same speech that the president gave in 1989 Carlos Menem to implement a similar neoliberal plan. Menem jumped from Peronist populism to neoliberalism, accompanying the political movements typical of the fall of the Berlin Wall. Argentina, he said then, required a “major surgery without anesthesia“. The parity between the peso and the dollar, sustained on the basis of privatizations and external debt, lasted a decade and ended with the so-called financial corralito, a social outbreak and the fall of the president’s government. Fernando de la Rúa.
Argentina once again listens to the same images of a sick body as new and tries the same recipe in an economic and social situation much more serious than that of three decades ago, with poverty close to 45%an inflation that this year will be greater than 150%, monetary reserves in the BCRA of about 21,000 million dollars and an external debt of 419,291 million dollars, aggravated by the loan of 45,000 million from the International Monetary Fund (IMF), contracted in 2018 by the administration of Mauricio Macri.
The Government will spend as much money as stipulated in the budget for the ending year, without updating for inflation. This way, The increase in the cost of living will act as a natural pruning and spending will fall in real terms drastically, close to 60%. Not coincidentally, the word on the lips of all economists is at this time “liquefaction“, a way of saying that inflation itself will be the executor of the fiscal adjustment. This will impact the salaries of public employees, pensions and social assistance plans. But also on general economic activity because public works, which, Caputo said, it will be frozen, it requires a significant number of industries.
The challenge in Congress
The extreme right must in turn outline the measures that it will send to Congress, ranging from taxes and privatizations to a radical reform of the structure of the State. This roadmap has been prepared by Federico Sturzeneggerpresident of the Central Bank during the Government of Mauricio Macri, together with Eleonora Urrutianone other than the wife of Hernán Büchithe man who led neoliberal economic reforms in Chile during the dictatorship of General Augusto Pinochet.
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The conservative revolution What Milei proposes will not have an easy time in Parliament: La Libertad Avanza (LLA), his party, only has 36 deputies out of 257 and seven of the 72 senators. He will need the favors of the traditional right and, in addition, other opposition forces.
The Buenos Aires opposition bastion
One of the peculiarities of the political process that has begun is that the province of Buenos Aires, the main economic and electoral district, where the scourge of poverty, is administered by Peronism. “Allow me to paraphrase what is said today: Long live Social Justice, damn it!“said its governor, Ax Kicillof, upon assuming that position for the second time, and in clear allusion to Milei. Former vice president Cristina Fernández de Kirchner participated in the ceremony and gave a glimpse of where the force to challenge the LLA project will be. The governor acknowledged that it will be very difficult to coexist with a national Executive that, he said, has the legitimacy of the polls. The province will need the Nation like water. “The people of Buenos Aires evaluated that what is missing in terms of housing, education, health, and infrastructure is not achieved neither with chainsaw nor with adjustment“, said.