Argentina’s fledgling government is pressing ahead with plans to eventually close the central bank and dollarize the economy, said Economy Minister Luis Caputo.
“The objective remains the same: to achieve dollarization,” Caputo said in a televised interview with La Nación newspaper late on Thursday, his first since taking office. “It is the president’s objective, what he campaigned on. The president does not lie. I would like that to be clear because we must have a real contract with the people.”
The first order of business, however, is to stamp out hyperinflation, balance the budget and avert a default, the minister said. The initial challenge is to slash the the fiscal deficit to zero from the current 15% of GDP, a process that began last week with a major austerity package, including a 118% devaluation of the peso against the US dollar.
“The deficit generates inflation and that is why we implemented a credible zero deficit plan,” he said. “This is a classic orthodox plan.”
By reining in the fiscal deficit, the far-right libertarian government hopes to cut inflation, which it now estimates is rising by 1% per day, or 3,700% per year. The official reading was 180% in November, but that doesn’t take into account widespread price controls that are now being removed. YPF, the state-run oil company, has raised its diesel and gasoline prices by 70% over the past week.
Caputo blamed rampant money printing by the central bank for the high inflation, adding that cutting spending will address the issue, helping to calm the exchange rate and eventually ease the rising cost of living.
“The sacrifice will pay off,” he said.
Separately, Latin American development bank CAF said its board of directors approved a $960 million loan for Argentina on Friday.
Argentina will use the funds from the short-term bridge loan to make an estimated $913 million payment on its $44 billion loan from the International Monetary Fund. The payment is due December 21.
The country faces a further $3.7 billion in payments through February on the IMF loan, plus another $1 billion to multilateral lenders and $1.5 billion on its bonds, according to local media reports.