There is a phrase of Javier Milei (Buenos Aires, 1970) that could not have been more sensible and that he repeated again and again during his campaign and in the final television duel. “It is impossible to change reality by doing the same things and A different Argentina is impossible with the same old people“And look, the magical realism of Argentine politics has wanted the new president to embark on doing exactly the opposite, after winning with great breadth and with the freedom he longed to achieve, without having to, theoretically, make an agreement with anyone. .
One of the main architect economists of the plan that began under the Government of Mauricio Macri (2015-2019), first as Secretary of Finance, then as Minister of Finance and, later, as President of the Central Bank, i.e. Luis Caputo (Buenos Aires, 1965), one of the senior officials most publicly vilified by Milei, He is the new czar of the Argentine economy. Milei accused him of the inheritance: “He smoked 15,000 million dollars and leaves us with this despiole [desaguisado] of the leliq [Letras de liquidez con las cuales el Banco Central regula la cantidad de dinero circulante]. Caputo “He is one of those responsible for the disasters that occurred in the Central Bank,” Milei said three weeks ago, on November 24.
Well yes, it is this same one Caputo who has chosen Milei -after a transaction with Mauricio Macri and other magnates with power – to compose the disaster that he began to weave and that the Peronist Government of Alberto Fernandez. If the inflation that left Macri was around 70%, under Fernandez has reached 140%.
The point is that Milei Not only does he not want to do something different, but he has also decided to do what has already been tried without success. And, to make matters worse, with the same ones as always.
Argentina evokes a certain parallel to the economic crisis of the Weimar Republic, particularly Germany in the years 21-23, the years of the Great Hyperinflation. In those years the film ‘The Cabinet of Doctor Caligari’ (the film by Robert Vienna in Berlin, 1920) about which the filmmaker Vincent LoBrutto described in 2005 as “the moral and physical collapse of Germany at the time, with a madman on the loose wreaking havoc on a distorted and out-of-balance society, a metaphor for a country in chaos.”
Until Milei explained in his speech about the inheritance received that inflation could reach 15,000%, a figure undoubtedly artificially invented based on the dollar, which in its speech last tuesday Caputo He added the example of a home in which milk could cost 60,000 pesos.
As the radio commentator said Victor Hugo Morales, in the program ‘La Mañana’ on Radio AM750, the speech of Milei “it is made to impress the gilada” [tontos, según el diccionario de americanismos de la RAE].
If you read the report on the Argentine economy issued last August by the International Monetary Fund (IMF) team that visited Buenos Aires, you will notice where Dr. Caputari’s cabinet’s plan came from. The emphasis, as is usual in the Fund, is placed on the fiscal deficit, and on the need to resolve the financial crisis of the Central Bank in the face of the negative situation of international reserves. In plain English: there are no more dollars left in the issuing bank.
The IMF does not put the figures in the skeleton of the plan that it had already put together with the envoys of the Government of Alberto Fernandez. These have been put in place by Dr. Caputari’s office. It is a plan designed to pay foreign creditors and domestic creditors a debt incurred by politics… of Caputo-Macri and increased by his successor, Alberto Fernández.
Far from anarcho-capitalism, appealing to the North American economist Murray Rothbard (United States 1926-1995) that proclaimed Milei in his campaign, it is such an interventionist program for the State that it is even assigned to determine the income of pensioners by government decree (in addition to other measures for importers and exporters).
The Argentine Central Bank has to find dollars and aims to pay about 25 billion dollars annually in interest on the debt. And for this it has designed an income policy where wage earners (new salary tax) and pensioners are the main pagans.
Exchange rate with the dollar
The starting point has been – although it took off timidly with the Government of Alberto Fernandez– a mega adjustment of the exchange rate. The official dollar has appreciated 100%, from 400 pesos to 800 pesos per unit, which in terms of devaluation or loss of value of the peso represents 50% (rising in real terms towards 70%) since with 400 pesos It is purchased now for $0.50.
The adjustment has meant the liberalization of prices, starting with fuel and public service rates, but what is called the exchange rate is maintained, or restrictions on access to foreign currency to control the outflow of currency from the country. and avoid speculation with the dollar.
Since 2018, according to selected IMF external sector indicators, Argentines withdrew $78 billion in cash from the country through the second quarter of 2023 and Argentine bondholders sold $23 billion worth of Argentine bonds.
The money to take care of these amounts came from a loan from the IMF, from the international reserves of the Central Bank, which are in negative balance, and from a swap operation facilitated by the People’s Bank of China (a line that was canceled by the Government of Xi Jinping following the insults of Milei against China in campaign and which is now seeking to renegotiate).
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The financial crisis of the Central Bank (the massive purchase of government bonds over the last year) that has surpassed any deficit monetization scheme to try to compensate for capital flight. That financial crisis together with the debt is the tumor that may now have a more widespread metastasis.
To the worsening of the financial crisis in the short term – the Central Bank will have to increase rather than reduce monetary emission – and to the threat of hyperinflation is added the recession that will also cause the paralysis of all public works. Milei knows what’s coming. For this reason, she has warned Argentines that there will be stagflation. That is, stagnation with inflation. In reality it has fallen short: we are talking about hyperinflation with sharp falls in economic activity. Milei He does not propose that everything has changed so that everything remains the same (‘Il Gattopardo’). Rather to make it worse. It’s the ‘shock’.