The libertarian economist Javier Milei, who will assume the Argentine presidency on December 10, assures that his first mission will be to apply a "shock plan" to try to stabilize the Argentine economy, which has deep imbalances that put it on the brink of a crisis. explosive
"When I talk about a shock plan, I'm talking about putting the public accounts in cash, I'm talking about what has to do with the solution of the Liquidity Letters (Leliq), fixing the balance sheet of the Central Bank and, once we have that on track , begin to open the stocks and move towards exchange rate unification," said Milei after his electoral victory on November 19.
A plan of challenging execution and uncertain outcome whose keys are the following:
Milei formulated the fiscal objective of achieving financial balance in 2024 (primary fiscal result and payment of debt interest), which means at least achieving a primary surplus equivalent to 2% of GDP. To do this, it should apply a fiscal adjustment of at least 5% of GDP, an ambitious goal that would involve drastic measures and not exempt from unpopularity and political costs.
The focus would be on reducing expenses on public infrastructure works and on public administration personnel, lowering subsidies, especially for energy and transportation, and cutting current transfers to the provinces. Assistance to thirty public companies would also be cut, which in a second phase would be privatized.
On the income side, Milei has promised to lower and eliminate many taxes, although it is not clear if he will advance in this direction in the short term, taking into account that, in a scenario of falling economic activity, collection will contract.
One of Milei's priorities is to "deflate" the Central Bank's liabilities, something that, according to the economist, is urgent to avoid entering hyperinflation. The unpaid debt of the Central Bank amounts to about 25,000 million dollars, a 'bomb' made of financial instruments (Liquidity Letters -Leliq- and Passive Passes) placed between commercial banks.
There is speculation in the market with an exit that redeems these instruments in exchange for Treasury debt securities or cash obtained from an international loan - for example, more financial aid from the International Monetary Fund -, or a combination of these. alternatives.
The Central Bank will stop issuing money to assist the Treasury in its financing needs, a practice to which Milei attributes the phenomenon of high inflation in Argentina.
The plan to dollarize the economy and close the Central Bank promised by Milei during the campaign seems to have lost steam or, at least, will not be executed immediately. The market expects that, as soon as it begins, the new Government will devalue the official exchange rate between 75 and 100%. Then would come other steps towards the progressive exchange rate unification - today there are around twenty alternative exchange rates coexist - and, finally, the lifting of the so-called exchange rate 'trap', the swarm of restrictions to access foreign currency that prevails in Argentina.
But progress towards these objectives will depend largely on the level of net reserves that the Central Bank manages to accumulate, currently negative at around 10.5 billion dollars.
Milei aims to end the "repression" of prices in the economy that keeps certain values of regulated goods and services fixed or retracted. This correction, together with the exchange measures that he plans to adopt, will have an inflationary effect, with a price index already very high, close to 160% year-on-year in November.
Milei himself has recognized that "stagflation" will deepen and that it will take time to get out of it, a delicate scenario where almost half of the population is already poor.
