Argentina’s new government will slash public spending in a bid to return to the country to economic prosperity, said Javier Milei in his first address as president on Sunday, acknowledging the measure will inevitably inflict financial pain on ordinary people.

“No government has received a worse inheritance than what we are receiving,” he said in a nearly 30 minute speech, in which he compared the upcoming change in economic models with the fall of the Berlin Wall.

Milei, a flamboyant, 53-year-old economist, focused the start of his speech on what he called the “disastrous” economic and financial conditions that he has been left to deal with, saying that when the former left-leaning faction of Peronism took power in 2003 the country had fiscal and external surpluses.

That faction, which ruled for 16 of the past 20 years, has left Argentina with twin deficits equivalent to 17% of GDP, of which 15% corresponds to the consolidated deficit of the treasury (5%) and the central bank (10%).

“There is no viable solution that avoids attacking the fiscal deficit,” said Milei from a stage on the steps of Congress in Buenos Aires.

But instead of making spending cuts that will affect the private sector, the fiscal adjustment will fall almost entirely on the state, Milei told a large crowd of people waving flags and chanting “long live freedom” and “yes, you can.”

TACKLING INFLATION

Milei said the rampant monetary issuance by the central bank has come to an end, saying that the practice has left Argentina steeped in inflation. The latest data shows that annual consumer price growth hit 143% in October, the highest since a period of hyperinflation in 1989 and 1990 and among the highest in the world.

If the central bank does not stop printing pesos, then Argentina could wind up with another period of hyperinflation topping 15,000% annual — the worst in its history. This would increase the poverty rate to 90% and indigence to 50% from the current rates of 45% and 10%, respectively, Milei warned.

“This is the legacy … that we are going to fight tooth and nail to eradicate,” Milei said. “We will do everything possible to avoid hyperinflation.”

The new head of state, wearing the presidential celeste-and-white sash, went on to say that the drastic changes to come will hurt, but he added that these will keep the country from becoming an outlier like Venezuela and compared the bright prospects for Argentina with Germany post reunification.

A MASSIVE DEBT

Another challenge is to reduce the public debt, he said.

The central bank alone owes $30 billion to importers and $10 billion to foreign companies, and it is running a debt of $25 billion when combined with that of state-controlled energy company YPF, while the treasury has another $35 billion in debt, Milei said.

This “debt bomb” amounts to $100 billion, which must be tackled along with the country’s $420 billion in total debt.

Without access to financial markets since Argentina’s latest spate of defaults in 2019 and 2020 and with a $44 billion loan agreement with the International Monetary Fund on the rocks, rolling over this debt “is extremely challenging,” Milei said.

To turn this around for the benefit of Argentines, the only way is through shock therapy, he said, adding that gradualism has always failed in Argentina.

“To achieve gradualism there needs to be financing. And unfortunately, I have to tell you again, there is no money,” he said. “The bottom line is that there is no alternative to adjustment, and there is no alternative to shock.

Milei warned that these shock policies will belabor Argentina with more of the stagflation that has been haunting the country for the past 12 years, with a 15% decline in economic growth and an accumulated 5,000% inflation over that period.

“We know that it will be hard,” he said, but added that “this is the last bad drink to begin the reconstruction of Argentina.”

LIGHT ON THE HORIZON

The prospects after this shock are rosier, he added. As investors see that progress is being made to reduce the fiscal deficit, country risk will decline, and investment will increase, he said.

Milei quoted former President Julio Roca, who ruled around the turn of the last century when Argentina was one of the world’s strongest economies, to show what must be done to restore the country to sustainable growth.

“Nothing great, nothing stable and lasting is achieved in the world when it comes to the freedom of men and the aggrandizement of peoples, if it is not at the cost of supreme efforts and painful sacrifices,” he quoted Roca as saying before adding his own words: “There will be light at the end of the road.”

[PHOTO. Argentine President Javier Milei addresses the crowds on his first day in office. Credit: La Libertad Avanza.]