A battery of austerity measures announced by Argentina’s new government has won votes of confidence from investors, but also concern that the short-term pain may be too much for the country to handle as inflation surpasses 160%.
“The measures are necessary to stop inflation,” an oil executive said on the condition of not being named. He added that the nine-point plan unveiled by Economy Minister Luis Caputo on Tuesday is likely to be the first in a series of structural reforms to pull the country out of a financial crisis that began in 2018 and worsened over the past year.
His assessment was widely shared at a gathering of oil executives in Buenos Aires, where the consensus was one of the cautious optimism.
“The measures are going in the right direction. It’s what needs to be done,” Daniel Dreizzen, an energy consultant at Ecolatina and former secretary of energy planning for Argentina, told LatinFinance.
The goal of the measures, including a 118% currency devaluation and sharp spending cuts, is to slash the fiscal deficit — it currently stands at the equivalent of 15% of GDP — in order to rein in inflation, which hit an annual 161% in November.
“Now we have to see if the measures make it possible to reach that final goal,” Dreizzen said.
Argentina’s $2.6 billion worth of defaulted July 2029 global bonds rose 1.8% on the Luxembourg Stock Exchange, extending a rally triggered by Javier Milei’s resounding victory in a presidential runoff vote last month.
IMF PRAISE
The new government’s opening salvo also won praise from the International Monetary Fund.
“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,” IMF spokeswoman Julie Kozack said in a statement late on Tuesday. “Their decisive implementation will help stabilize the economy and set the basis for more sustainable and private-sector led growth.”
It won’t be easy, though, and there is concern social unrest is brewing as rising inflation makes it harder for people to make ends meet.
Manuel Adorni, the presidential spokesman, said on Wednesday there is no alternative to short-term pain for a country that has little money and no access to international markets because of its low creditworthiness.
“When you spend more than you have, you have two alternatives: Go to the bank or ask a friend for a loan,” Adorni said. “Here we have neither. We have a sad history of debt due to being serial defaulters and our friend the central bank is no longer our friend and he is not going to finance a single peso.”