In a bold move to address Argentina’s deepening economic crisis, President Javier Milei‘s administration has implemented a sweeping 50% devaluation of the national currency, the Argentine peso.
This radical measure, announced on Dec. 12, marks a significant shift in the nation’s approach to combating its longstanding financial troubles.
50% devaluation
As part of a broader economic reform strategy, the peso’s value will plunge from 400 to over 800 against the U.S. dollar.
Economy Minister Luis Caputo outlined additional austerity actions, including significant subsidy reductions, the halting of public works tenders, and the consolidation of government ministries. He said the “painful” measures were necessary to “avoid catastrophe” in the form of severe hyperinflation.
Meanwhile, the government is doubling social spending to cushion the poorest from these harsh measures. Caputo, in a candid televised statement, acknowledged the immediate hardships these changes would bring, stating:
“For a few months, we’re going to be worse than before. Particularly with inflation.”
IMF approves measures
The International Monetary Fund (IMF), which lent Argentina $45 billion in 2022, has praised the new measures, which follow the guidelines set by the watchdog as part of the loan.
The regulator has also urged the government to clamp down on the use of cryptocurrencies in the country, which has increasingly turned to Bitcoin and other digital assets as a hedge from the economic crisis.
More than 10% of the population was using cryptocurrencies in some form at the end of 2022. Many in the country hoped that Milei, who has expressed a positive stance toward Bitcoin, would legitimize the industry.
However, the newly appointed president has not made any official moves regarding Bitcoin as part of his economic policies since taking office. His administration has focused on addressing Argentina’s severe economic crisis, emphasizing the need for immediate action and preparing the nation for significant austerity measures.
Milei, who took office this month, advocates for stringent austerity to steer Argentina toward economic stability. His approach, often described as “anarcho-capitalist,” diverges markedly from gradualist policies, focusing instead on drastic state-sector adjustments.
Despite Milei’s unorthodox methods, there appears to be a growing acceptance among Argentinians, weary of soaring inflation and a staggering 40% poverty rate. Yet, significant challenges lie ahead.
Milei’s plan is poised to face stiff resistance, particularly from the influential left-leaning Peronist movement and its associated unions, which are staunchly opposed to wage reductions for their members.
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