Anna 
Argentina is set to undergo economic shock therapy with a series of measures, including a more than 50% devaluation of the peso to 800 per dollar, the reduction of energy subsidies, and the cancellation of public works tenders, as announced by the newly appointed Economy Minister Luis Caputo on Tuesday. The move comes in response to the country’s severe economic crisis, with the aim of addressing its worst financial downturn in decades.
Caputo acknowledged that the plan would inflict short-term pain but stressed its necessity to address the fiscal deficit and curb triple-digit inflation. The announcement followed the inauguration of libertarian President Javier Milei on Sunday.
“The objective is simply to avoid catastrophe and get the economy back on track,” Caputo stated in a recorded speech, emphasizing the need to confront Argentina’s deep-rooted fiscal deficit, which he estimated at 5.5% of GDP. According to Caputo, Argentina has faced a fiscal deficit for 113 of the last 123 years, contributing significantly to its economic challenges.
Argentina, a major grains producer, is currently grappling with inflation nearing 150%, a deep fiscal deficit, and around 40% of its population living in poverty. Additionally, the country has a precarious $44 billion loan with the International Monetary Fund.
IMF Chief Kristalina Georgieva welcomed the decisive measures, considering them an important step toward stability and the rebuilding of the country’s economic potential.
The foreign exchange and grains markets in Argentina were temporarily halted on Tuesday as traders awaited the government’s economic plan. Banks had already anticipated a significant devaluation, with some adjusting their exchange rates to 700.
Since 2019, Argentina’s peso has been artificially bolstered by strict capital controls, creating a substantial gap between the official exchange rate and parallel rates.
President Milei, known for his unconventional approach, campaigned with promises of major spending cuts, reflected in his administration’s motto, “there is no money.” His tough fiscal rhetoric has resonated positively with markets, leading to record highs in the S&P Merval stock index and nearly 4% increases in sovereign bonds.
Analysts noted that the announced devaluation exceeded market expectations and emphasized that implementation would be crucial for the success of the economic adjustment. Despite the positive market response, concerns linger about the potential social, economic, and political risks associated with the ambitious measures. The central bank, under new president Santiago Bausili, is expected to announce additional measures related to interest rates, debt, and monetary policy.
