This Sunday, Javier Milei starred in something unusual in Argentine politics. The president of the River Plate country himself presented before Congress the draft budget for 2025 in which he promises to reduce inflation at the end of next year to 18.3% year-on-year, compared to the 104% expected for 2024. Argentina closed the month of August with a CPI of 236.7% year-on-year and a cumulative figure so far this year of 94.8%, according to recent data published by the National Institute of Statistics and Censuses (Indec).
The president delivered a speech of more than 40 minutes and it was also broadcast on a national network throughout the country. This is unprecedented because normally it is the Ministry of Economy that presents the public accounts.
Very high inflation is one of the major structural problems that the Argentine economy suffers from, but Javier Milei’s goal is to set it at 1% per month before the end of the year, although experts consider this goal to be quite distant. Many agree that the disinflation process has stalled at 4%.
In general, they estimate that throughout the year, the CPI will decrease sharply over the next 12 months, to around 44.7%, according to a survey conducted by the Central Bank of Argentina. Specifically, they expect annual inflation to fall to 122.9% in 2024.
Regarding growth, the libertarian announced that he expects the Argentine economy to grow by 5% by 2025, above the 3.5% predicted by economists surveyed by the Central Bank and the IMF.
One of the most remarkable aspects of Milei’s plan to combat inflation is the projection of the official exchange rate. Specifically, it is expected to end in 2025 at 1,207 pesos to the dollar, which shows a depreciation of the local currency similar to the current rate of 2% per month controlled by the government.
Economist Haroldo Montagú told the Argentine newspaper Bugle that “although this is desirable, it does not seem that inflation will occur in this way, especially with the recomposition of relative prices that is lacking and with the increases in regulated (prices) that are programmed.”
Zero deficit
President’s economic team continues on ‘zero deficit’ path even as he asks provincial governments to make fiscal adjustments of 60 billion “to respect the commitment to reduce consolidated public expenditure to 25 points of GDP,” the president said.
Specifically, Milei said that “the cornerstone” of these accounts is “the first truth of macroeconomics, a truth that has been relegated in Argentina for many years: the zero deficit,” and this is how he began his speech before the Chamber. He also stressed the importance of “ending the budget deficit, reducing public spending, eliminating taxes and trusting in the exercise of freedom” to achieve “economic stability.”
Thus, according to official accounts, the Argentine government expects a surplus of 192,334 million pesos (about 18 million euros at the official exchange rate) and a current calculation of 114,000 million Argentine pesos. Regarding public spending, they foresee a significant impact reduced by up to 8.5 billion pesos. Thus, the budget surplus would end next year at 0.4% of GDP, with consumption collapsing at a rapid pace. Since the beginning of the year, it has fallen by 1.5%, according to the chambers of commerce. All this while the country has already a poverty rate of over 50%.
But Milei was very clear: “We will veto all projects that threaten the budget balance, because we are not going to be complicit in the fraud of the Argentine people so that they take a populist measure.” He reiterated his mantra that “to manage is to reduce the State to expand society.”
The announcement comes after he vetoed the pension reform bill, arguing that it was an “exorbitant expense” that endangered the country’s balance of accounts. He also said he would do the same with the university financing lawwhich was approved by the Senate last week. This law proposes to increase the funds and update them according to the CPI.
Economist Fernando Marull made a name for himself on the Argentine channel LN+ that the budget “says there will be a surplus of dollars next year” and that this is something that “the markets are not going to believe.”
It is now necessary to remember that Milei is a minority in both houses and, as happened with the Law of Bases and Starting Points for the Freedom of Argentines, popularly known as the “omnibus law”his star decree. After tough negotiations, the document was reduced from 600 to 300 points.
Currently, the project is now entering the Budget Committee of the Chamber of Deputies (Lower), to then be submitted for debate.
“I hope that this honorable National Congress will debate the national budget project with the responsibility and seriousness that our current situation demands,” said the president at the end of his speech, in which he considered that the country was living “a pivotal moment in its history.”
