The unprecedented ‘shock’ plan launched without anesthesia by the libertarian Javier Miley has meant a severe economic adjustment, with a “successful” result in the public accounts, but at the cost of drastic spending cuts and paralysis of activity, a harsh scenario for a Argentina impoverished and burdened by very high inflation.
The fiscal imbalance, together with the very high inflation -211.4% in 2023, the highest rate in the world- and the monetary and exchange problems, are the greatest burdens with which Milei took the reins of the battered Argentine economy 100 days ago .
The libertarian economist assumed the Argentine Presidency on December 10 and, without delay, undertook a severe adjustment plan equivalent to 5% of GDP – something for which “there are no historical records in the world,” according to Milei – with the aim of recover the surplus this year, from a primary deficit of 2.9% of GDP and a negative financial result of 6.1% of GDP in 2023.
With drastic spending cuts, the effects of its ‘shock’ plan were already seen, and forcefully, in January and February: Argentina not only managed to have a primary surplus but also a positive financial result, equivalent to 0.2% of GDP in the first two months.
«In these first three months we avoided hyperinflation and, with public accounts in order, we are on the way to ending inflation. Three months ago they asked us when the disaster was coming and today, when will we reach the light at the end of the tunnel. The greatest success is having managed to transform the expectation of devastation. It is a great achievement”the presidential spokesperson stated last Friday, Manuel Adorni.
The new Administration has also worked to reduce the monetary surpluses and the heavy liabilities of the Central Bank, cut the monetary issue to finance the Treasury, alleviate the burden of debt maturities and rebuild the monetary reserves, adding 10.6 billion dollars since the arrival by Milei.
The better prices of Argentine stocks and sovereign bonds reflect the credit that investors give to the ‘Milei plan’ for now, while alternative exchange rates are experiencing a calm not seen for a long time in the usually turbulent local market.
«Milei made a good diagnosis, attacked the problems of the macroeconomy and created a fiscal anchor based on his credibility. “That is very good news for the economy, as it came.”he told EFE Leonardo Piazzadirector of the consulting firm LP Consulting.
But the expert warns that economic activity is in decline and “on the limit”, with “real income pulverized” and without “social support” for the most vulnerable, when nearly half of Argentines are poor.
Inflation grew 25.5% monthly in December and 20.6% in January, jumps that the Government attributed to the “inheritance” of the economic chaos of the previous Executive, but which, in fact, were driven by the strong devaluation of the peso Argentina and the release of the “repressed” prices of the economy as soon as the new Administration began.
Prices have been slowing since January, with monthly inflation of 13.2% in February, a phenomenon that Milei attributes to its iron fiscal and monetary discipline.
“Inflation is not falling because there is a stabilization plan, with investment and genuine job creation, but because there is a spraying of real income, because there is no salary anchor, with a fall in consumption”Piazza observed.
Price increases, in practice, are finding their limit in the thin pockets of consumers, whose incomes have not been able to recover from the inflation accumulated in the last three months. In February alone, sales of SME businesses plummeted 25.5% year-on-year.
Commerce is not the only sector affected. Industry and construction have collapsed.
“I said that the beginning was going to be very hard,” Milei recalled a few days ago, who assures that, despite the current difficult scenario, economic expectations are improving.
While attacking macroeconomic imbalances, Milei, an ‘anarcho-capitalist’ who dreams of a world without a State, is trying to advance with profound reforms to deregulate the economy, but so far he has failed to build political consensus, something that investors and businessmen are beginning to realize. observe with concern. Several important union groups have reacted to his economic measures with total rejection, calling for mass protests against the president. EFE (I)
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