Public service cuts and devaluing the peso: How Argentina is tackling its 'biggest crisis'

Javier Milei holds a cardboard image of a 100 US dollar bill featuring his face, as part of a campaign rally in Argentina.
Javier Milei was elected Argentinian president on the back of a campaign that promised wide-ranging economic reforms. Credit: AP

By James Gray, Multimedia Producer

Argentina's newly-elected president has pledged a radical economic overhaul to arrest what he has labelled as the country's "biggest crisis".

Details of Javier Milei's proposals have now started to be unveiled by his government, and revolve around Argentina's currency and public services.

Argentina is South America's second largest economy, but in recent times has racked up debts stretching into the tens of billions of dollars.

Here, ITV News analyses the economic proposals which have been made so far, and the reaction they have generated.

Devaluing the Argentine peso

Argentina Economy Minister Luis Caputo announced on Tuesday that the country's currency - the Argentine peso - will be devalued by 50%, meaning 800 pesos would be equal to one US dollar.

Previously, the exchange rate dictated that a single US dollar was the equivalent of 400 pesos.

Mr Caputo said in a televised address that for a "few months" Argentinians would be "worse than before", but added the measure was one of a number that is needed to arrest the country's poor economy.

Greater quantities of the peso have been printed by Argentina's central bank in recent years to help prevent its government from defaulting on national debt payments.

Javier Milei (left) was elected as Argentina president in November. Credit: AP

President Milei had campaigned on a pledge to replace the peso with the dollar, but Mr Caputo did not mention any such plans during his address.

Were a move to be sanctioned, it would require Argentina to exchange all pesos held by residents and businesses for dollars.

A dollar value would also need to be assigned for all assets and contracts, while the US Federal Reserve would secure governing powers over Argentina's monetary policy, such as setting interest rates.

Public service cuts

Fiscal deficit is at the heart of Argentina's economic problems, according to Mr Caputo, and to help cut it he has said new public works projects will be scrapped.

Plans are also in place not to renew labour contracts which have been in effect for more than a year, while the number of Argentine federal ministries will be slashed from 18 to nine.

Additionally, energy and transportation subsidies for residents will be cut, although Mr Caputo did not provide details on exactly how much by.

Regarding public works, Mr Caputo said that "there's no money to pay for works that often end up in the pockets of politicians and business people".

He sought to justify the proposals by saying that Argentina is on course to hit "hyperinflation", adding: "Our mission is to avoid a catastrophe."

Mr Caputo's comments align with those previously made by President Milei that Argentina does not have time to consider alternative solutions.

Argentina Economy Minister Luis Caputo announced public service cuts and a devaluation of the peso on Tuesday. Credit: AP

Why are these plans needed?

Currently, Argentina - which is South America's second largest economy - is suffering 143% annual inflation, pushing four in 10 Argentinians below the poverty line.

Debts of tens of billions of dollars have gradually built up, with $45 billion (£35.9 billion) owed to the International Monetary Fund (IMF) alone.

President Milei has previously repeated the phrase "we have no money", using it to help explain why a gradualist approach to the situation would not work.

His inauguration address spelled out the crisis facing Argentina, saying: "In the last 12 years, GDP per capita fell 15% in a context in which we accumulated 5,000% inflation.

"As such, for more than a decade we have lived in stagflation. This is the last rough patch before starting the reconstruction of Argentina."

Annual inflation in Argentina is currently ranking at 143%. Credit: AP

What has been the initial reaction?

The IMF has welcomed the plans, in the wake of Mr Caputo's address, saying they provide "a good foundation" for further discussions with Argentina about its debt with the institution.

"These bold initial actions aim to significantly improve public finances in a manner that protects the most vulnerable in society and strengthen the foreign exchange regime," an IMF spokesperson said.

"Their decisive implementation will help stabilise the economy and set the basis for more sustainable and private-sector led growth."

But the government's fiscal strategy has attracted criticism from domestic politicians.

Argentinian social leader Juan Grabois is among those to hit out, warning Mr Caputo has announced "a social murder without flinching like a psychopath about to massacre his defenceless victims".

He said: "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.

"Do you really think that people are not going to protest?"

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