Buenos Aires, 12 Dec (EFE). – Argentina has announced an economic package centered on a sharp reduction in government spending to achieve fiscal balance and nip in the bud the money printing that is the cause of Argentina’s high inflation, according to the new government’s diagnosis.
Economy Minister Luis Caputo, in a taped broadcast on Tuesday, announced a dozen measures that make up an “emergency package” that includes subsidy cuts aimed at “neutralizing the crisis and stabilizing the economic variables” of Argentina.
“We are going to reduce subsidies for energy and transport. Today, the state keeps energy and transport prices artificially low through subsidies,” the minister said, and added that “politics has always” done this, “because that is how they deceive people, making them think they are putting money in their pockets”.
“However, these subsidies are not free, they are paid with inflation,” said the new minister in the government of Javier Milei.
Other measures include not renewing state employment contracts for less than one year, suspending official advertising in the media, reducing the number of ministries and government secretariats, minimizing transfers from the national government to the provinces and not issuing any more tenders for public works.
The announcements also included a sharp exchange rate correction, taking the official rate from 400 pesos per US dollar to 800 pesos per unit.
The International Monetary Fund’s technical staff expressed for the measures.
“These strong initial actions aim to significantly improve public finances in a way that protects the most vulnerable in society and to strengthen the exchange rate regime,” IMF Communications Director Julie Kozack said in a statement.
“Their determined implementation will help stabilize the economy and lay the foundation for more sustainable and private sector-led growth,” the spokeswoman added.
Kozack stressed that “after the serious setbacks in economic policy in recent months, this new package of measures provides a good basis for continuing discussions on reorienting the current Fund-ed program.”
The IMF Communications Director also told a press conference last week that high prices were one of the key “imbalances” that the country urgently needed to address and that “a strong and credible central bank was needed to bring inflation down”.
An immediate challenge for Milei will be to sit down and negotiate with the IMF, to which Argentina owes some $46 billion.
The new president is aware that the 2022 refinancing agreement signed with the IMF has “fallen apart” because Argentina has failed to meet the fiscal targets for reserve accumulation and the ceiling on central bank financing of the Treasury set out in the pact.
Compliance with these objectives is a condition for the Fund to make quarterly disbursements that allow the country to pay its dues with the organization and not fall into default. EFE
mgr-int/mcd
