Argentina’s Economy Minister Luis Caputo declared emergency measures on Tuesday, revealing a plan to devalue the peso by over 50% to aid the nation’s ailing economy.
This bold step alters the official conversion rate to 800 pesos per dollar, a significant shift from the previous 365 pesos. The decision comes within the first few days of President Javier Milei’s term.
Milei campaigned on a promise to eliminate the peso and substitute it with the dollar as a means to revive the economy. Strict capital controls have artificially upheld the peso for years, but its value has declined by approximately 52% this year against the US dollar.
NEW: 🇦🇷 Protestors against Milei flood the streets in Argentina as the new president devalues the peso by 54% (to 800 pesos per dollar) 👀
This move aims to address the country's fiscal deficit "addiction." 😮
— Bitcoin News (@BitcoinNewsCom) December 12, 2023
In recent years, Argentina’s central bank increased the printing of pesos to prevent the government from defaulting on its debt, leading to soaring prices. The action was the first among a series of measures to curb hyperinflation, prompting Argentina’s central bank to elevate its benchmark interest rate to 133% in October.
On Tuesday, Caputo reaffirmed Milei’s campaign message that “there is no money.” He detailed additional measures, including a reduction in new public works projects, the non-renewal of labor contracts under one year, and a decrease in subsidies for energy and transportation.
“For a few months, we’ll face challenges, especially with inflation,” he remarked.
In relation to public works, Caputo emphasized, “There’s insufficient funds to finance projects that often result in benefiting politicians and business figures.”
On Tuesday, the International Monetary Fund expressed its support for the new initiatives following Caputo’s statements.
Julie Kozack, IMF director of communications, released a statement saying, “IMF staff welcome the measures announced earlier today by Argentina’s new Economy Minister, Luis Caputo. These bold initial actions aim to significantly improve public finances in a manner that protects the most vulnerable in society and strengthen the foreign exchange regime.”
During his victory speech on Sunday, Milei offered minimal details about his economic plan. However, the self-proclaimed “anarcho-capitalist,” who used a chainsaw as a symbol on the campaign trail to signify his intentions to reduce state spending, pledged to implement drastic reforms.
While he was being sworn into his new role as president, Milei declared to an onlooking crowd, “I want you to be aware that we are going to begin the reconstruction of Argentina after more than a hundred years of decline, redrawing the ideas of freedom, although we are going to have to endure a period of hardness, we will move forward.”
While several nations, such as Ecuador, El Salvador, and Panama, have adopted this measure, none of them match the scale of Argentina.
Milei has engaged with key US officials since assuming office and his economic team has collaborated with the IMF to reshape the country’s foreign policy and rejuvenate its economy.