Argentina starts economic shock therapy by devaluing peso by 50 percent

New president Milei warns of painful measures as currency value slashed, subsidies cut, public works tenders cancelled.

Argentina’s government has announced it will slash the value of its currency, the peso, by more than 50 percent against the US dollar as its new far-right president seeks radical solutions to fix the country’s worst economic crisis in decades.

President Javier Milei‘s economy chief announced the painful measure on Tuesday, saying it was necessary for Argentina to “avoid catastrophe”.

The devaluation would drop the peso’s value from 400 to the dollar to more than 800 to the dollar, a blow to tens of millions of Argentinians already struggling to make ends meet.

Economy Minister Luis Caputo announced a raft of other austerity measures, including sweeping subsidy cuts, the cancellation of tenders for public works projects, and plans to axe nine government ministries.

However, the government plans to double social spending for the poorest to help them absorb the economic shock.

“For a few months, we’re going to be worse than before,” Caputo said in his televised address.

“If we continue as we are, we are inevitably heading toward hyperinflation,” he said.

‘Tough pill to swallow’

The planned measures drew praise from the International Monetary Fund (IMF), to whom Argentina owes $45bn, but sparked harsh criticism from some progressive activists.

Left-wing activist Juan Grabois said that Caputo had declared “a social murder without flinching like a psychopath about to massacre his defenceless victims”.

“Your salary in the private sector, in the public sector, in the popular, social and solidarity economy, in the cooperative or informal sector, for retirees and pensioners, will get you half in the supermarket,” Grabois said. “Do you really think that people are not going to protest?”

Jimena Blanco, chief analyst with risk consulting firm Verisk Maplecroft, said Milei’s government was trying to temper an otherwise guaranteed economic crash landing.

“He promised a very tough pill to swallow and he’s delivering that pill,” she said. “The question is how long will popular patience last in terms of waiting for the economic situation to change.”

Economic shock

The economic overhaul is part of the new strategy by Milei, who was sworn in on Sunday and has aggressively sought to tackle the fiscal deficit he believes is the root of Argentina’s economic woes.

A self-described “anarcho-capitalist”, Milei argues harsh austerity is needed to put Argentina back on the path to prosperity and that there is no time for a gradualist approach. However, he has promised any adjustments will almost entirely affect the state rather than the private sector.

Argentinians, disillusioned with skyrocketing inflation and a 40 percent poverty rate, have proven surprisingly receptive to his vision.

Still, Milei’s road map is likely to encounter fierce opposition from the left-leaning Peronist movement’s lawmakers and unions it controls, whose members have said they refuse to lose wages.