Argentina Plans 50% Devaluation of Currency in Economic Overhaul

Argentina’s newly elected President, Javier Milei, has announced plans to devalue the country’s currency by more than 50% against the US dollar as part of what he calls “economic shock therapy.” The move aims to address Argentina’s severe economic crisis, marked by soaring inflation, high government debt, and low cash reserves. Economy Minister Luis Caputo revealed additional measures, including significant cuts to public spending, reducing fuel and transport subsidies, and freezing spending on certain government contracts and advertising.

Argentina grapples with 150% inflation in the past year, leaving almost 40% of the population below the poverty line. The government, led by President Milei, sees the drastic devaluation as a necessary step to avoid hyperinflation. Caputo acknowledges inheriting the worst economic legacy, anticipates challenging months ahead, and stresses truthful communication about economic reality.

The exchange rate adjusts to 800 pesos per US dollar, a significant decrease from previous rate of around 391 pesos. Argentina has maintained an artificially strong currency since 2019 through strict control measures. The devaluation is intended to address economic imbalances and create an environment conducive to private sector growth.

The International Monetary Fund (IMF), to which Argentina owes $44 billion, has termed the measures “bold” and believes they will contribute to restoring stability and rebuilding the country’s economic potential. Therefore, IMF Chief Kristalina Georgieva welcomed the decisive steps, highlighting their significance in the economic recovery process.

President Milei, a libertarian, campaigned on major spending cuts, famously using a chainsaw at rallies to symbolize fiscal commitment. While these measures have been praised by some for their boldness, there are concerns about the potential challenges of implementing significant spending cuts without causing economic turmoil. As Argentina’s third-largest bloc, the president’s coalition navigates economic challenges and strives to fulfill its reform agenda in Congress.