“Shock therapy” from Miley: Argentina devalues the official peso by more than 50% against the US dollar

Argentina’s new government says it will weaken the value of its peso currency by more than 50% against the US dollar, the BBC reports.

This is part of the “economic shock therapy” that, according to the new President Javier Milea, the country needs to overcome the worst crisis in decades.

Economy Minister Luis Caputo announced significant cuts in government spending. This includes cutting fuel and transportation subsidies, as well as freezing spending on some large government contracts and advertising. Commenting on the cuts in spending on infrastructure projects, Caputo said: “The reality is that there is no money to pay for more public works, which, as all Argentines know, often end up in the pockets of politicians or businessmen.”

The official emphasized that he inherited the worst economic situation in Argentina’s history and is trying to avoid hyperinflation.

“In a few months, we will be in a worse position than before, especially in terms of inflation. And I say this because, as the president says, it is better to tell an inconvenient truth than a convenient lie,” he said.

In Argentina, prices have risen by about 150% over the past year. The country also has low cash reserves and high public debt, and 40% of the population lives below the poverty line.

The International Monetary Fund, to which Buenos Aires owes 44 billion, called the measures bold and said they would help create conditions for private sector growth. IMF chief Christina Georgieva said the government’s actions were an important step toward restoring stability and the country’s economic potential.

Caputo said that the official exchange rate would be lowered to 800 pesos per US dollar from about 391 pesos. Since 2019, Argentina has been artificially maintaining a strong currency by strictly controlling currency movements. This has helped to stimulate demand for the US dollar in the unofficial foreign exchange market, where the peso was trading at a much lower rate.

UkrAgroConsult adds. But this is the official exchange rate, on the black market the dollar is worth more than 1000 pesos, so this devaluation is more a step towards establishing a single exchange rate instead of several. The situation with a large difference between the official rate and the black market rate made it unprofitable for exporters to export, as they had to exchange their foreign exchange earnings at a government rate that was unfavorable for them. To stimulate agricultural exports, the government introduced another exchange rate, the so-called “soy dollar,” which was a cross between the official and black market rates.

Tags: Argentina