Argentina's new president solves monetary policy problems and depreciates the currency by 50%

Incoming President Javier Milei’s emergency austerity measures to curb inflation in Argentina have been approved by the International Monetary Fund, but the government acknowledges short-term pain.

To address Argentina’s growing economic crisis, President Javier Milley’s government took a bold step to sharply devalue the national currency, the Argentine peso, by 50%.

The radical measure, announced on December 12, marks a major shift in the country’s approach to long-term financial problems.

Argentine peso depreciates by 50%

As part of a broader economic reform strategy, the peso will plummet from 400 to more than 800 against the dollar.

Economy Minister Luis Caputo outlined other austerity actions, including deep cuts in subsidies, halting tenders for public works, and consolidating government departments. He also said that in order to “avoid the catastrophe of severe hyperinflation”, “painful” measures must be taken.

At the same time, the government is doubling social spending to cushion the poorest from these draconian measures. In a candid televised statement, Caputo acknowledged that the changes would pose immediate difficulties, saying:

"In the next few months, we will be worse off than before. Especially in the case of inflation. ”

IMF Approval Measures

The International Monetary Fund (IMF), which lent $45 billion to Argentina in 2022, applauded the new measures, which follow the guidelines set by the regulator in lending.

The regulator has also urged the government to crack down on the use of cryptocurrencies in the country, which is increasingly turning to BTC and other crypto-digital assets as a hedge against the economic crisis.

By the end of 2022, more than 10% of the population was using cryptocurrencies in some form. Many in the country hope that Milei, which has expressed a positive stance on BTC, will be able to legitimize the industry.

However, the newly appointed president has not taken any formal action on BTC as part of his economic policy since taking office. His government is focused on addressing Argentina’s severe economic crisis, stressing the need for immediate action and preparing the country for major austerity measures.

Milley, who took office this month, has advocated strict austerity policies to steer Argentina toward economic stability. His approach, often described as “anarcho-capitalism,” is markedly different from gradualist policies and instead focuses on drastic adjustments in the state sector.

Despite Milley’s unorthodox approach, Argentines fed up soaring inflation and a shocking 40% poverty rate seem increasingly accepting of it. However, serious challenges remain.

Milley’s plan will face strong resistance, especially from the influential left-leaning Peronist movement and its associated trade unions, which are adamantly opposed to lowering the wages of their members.