Milei’s plan continues its course. The Argentine government appears to have won the first battle against inflation thanks to its “shock therapy” based on cuts in public spending to balance the public accounts almost overnight. The markets are beginning to significantly believe in Milei’s plan, which undoubtedly has an effect that reinforces the effectiveness of the government’s measures. The more bond prices rise, the further Argentina moves away from default. The longer Argentina defaults, the stronger the peso will be and the easier it will be to win the war against inflation. For now, in the first battle, the Milei plan has proven to be a steamroller, pushing the monthly CPI from 25.5% at the end of 2023 to 2.7% in October.
Year-on-year, Argentina’s consumer price index (CPI) stood at 193% year-on-year in October, its sixth consecutive deceleration, the National Institute of Statistics and Censuses (Indec) reported on Tuesday. ). In the tenth month of the year, consumer prices increased by 2.7% compared to September, implying a slowdown from the monthly rate of 3.5% recorded the previous month.
October’s monthly index is the lowest since November 2021, when the monthly change was 2.5%, and is well below the rates recorded last December (25.5%) and January (20.6%).
After the sudden devaluation of the Argentine peso ordered by the government of Javier Milei at the start of his mandate, in December 2023, and the impact of his first ultraliberal measures, prices began a downward trend in Argentina following a strong adjustment budgetary and monetary. and a collapse in consumption that crushed demand. According to the official report released on Tuesday, the prices of goods experienced a positive variation of 2.1% last month compared to September, while services increased by 4.3%, data which respectively amounted to 179 , 2% and 233.1% during the year. comparison over one year.
This inflation data was released almost at the same time as Argentina’s new budget surplus. Argentina achieved a new budget surplus last October, following ten months of positive results, compared to a history of red in the public accounts, as anticipated this Tuesday by the Minister of the Economy, Luis Caputo.
“In October we are going to have a significant financial surplus,” Caputo said at the closing of the annual conference of the Foundation for Latin American Economic Research (FIEL), at the Buenos Aires Stock Exchange, anticipating the data that will be published this month. Friday. . “Argentina is the best student in the Americas. It is the only country that today has a budget surplus,” compared the minister. “We did all this with respect for private property, the market, without breaking contracts,” he stressed.
The Milei steamroller
Since Javier Milei assumed the presidency of Argentina, his government has implemented a series of decisive measures with the aim of achieving a budget surplus, reduce country risk and gain the confidence of international markets. Milei, who has repeatedly expressed his alignment with free market principles, has implemented fiscal adjustment and economic liberalization policies to restore stability in a country historically facing high levels of inflation and debt public. These measures, although controversial, are starting to bear fruit, with a notable reduction in country risk, which fell to 830 basis pointsa sign of greater credibility in the economic management of the new government.
One of the pillars of Milei’s strategy has been budgetary consolidation. The government has implemented significant cuts in public spending, including reducing subsidies in key sectors such as energy and transport. This adjustment, although unpopular in some sectors, was essential to achieving the budget surplus. In addition, Milei’s administration promoted tax reform that simplifies the tax system and eliminates certain taxes that affected investment and business growth, with the aim of boosting the economy and attracting domestic and foreign capital.
Another key step in Milei’s strategy was the liberalization of price controls, also partially eliminating restrictions on access to foreign currencies for businesses and individuals. This liberalization facilitated the entry of investments and helped stabilize the foreign exchange market (peso exchange rate).which is essential in an economy that seeks to attract foreign capital. Alongside this policy, the Central Bank, under the leadership of a team aligned with the government’s objectives, adopted a floating exchange rate approach to improve the competitiveness of Argentina’s exports and reduce volatility in the foreign exchange market.
To restore investor confidence, the government also worked to renegotiate the terms of Argentina’s external debt, obtaining more favorable terms and extended payment terms. This effort, combined with the commitment to stabilize public accounts, has contributed to reducing country risk. Improving risk perception in Argentina allows the country to access external financing on better terms, which is essential to promote economic development and support strategic productive sectors.
Together, these policies of fiscal adjustment, economic liberalization, and debt restructuring have placed Argentina on the path to economic recovery. Milei’s administration, through these measures, has sought to establish a more open and stable economy, with a macroeconomic framework that inspires confidence in the markets and encourages investments.
