• Fri. Mar 1st, 2024

Surviving the Economy: Argentina’s Adjustment and Its Impact on Inflation


Feb 10, 2024
Strengthening the Adjustment and Holding Firm Against the Dollar

Luis Caputo, the Minister of Economy, has been welcomed into Javier Miley’s team, and both men are pleased with the decision. One of the most controversial decisions made during the adjustment was eliminating subsidies for urban transportation in provinces. The interpretation was immediate: Milei withdrew the Omnibus bill from Congress because he believed it wouldn’t be approved, and that cut came immediately. Caputo was tasked with messaging to ensure that no political failure of the ruling party would cloud their efforts to achieve a financial surplus.

Following these decisions, stock prices collapsed and bonds fell but not as expected. This led to questions over whether the market believes the Minister that achieving a financial surplus is an absolute priority regardless of political costs. Economists agree and quietly celebrate some moderation in price increases that will be verified in these days of February. However, they are limited and silent celebrations because an increase in living costs this month is expected to be around 18%.

The adjustment, based on an important liquefaction of pensions, salaries and fixed-term deposits in pesos, entered a new stage different from what has characterized Argentina’s economy since 2023. The new cycle is generated by a sharp drop in sales since January due to what was the price stampede after December’s devaluation.

Discounts are being offered at 50-70% on second units in supermarkets, and discounts for retirees have gained prominence. The adjustment is having a strong impact on families, and a key question revolves around how much recession will be necessary to lower inflation. The vision of Economy differs; the dominant point of view is not only to maintain fixed exchange rate policy but also deepening its use as an anchor currency to moderate price increase attempts.

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