Charting the economic course under President Milei: a 2024 projection
In the brief span since December 10, President Milei's administration has unleashed a barrage of announcements and policy announcements that surpass the combined dynamism witnessed during the eight years of the Macri and Fernandez governments. This fervor signals Milei's commitment to transformative shifts across Argentina's political, economic, and social spheres. Irrespective of the legislative fate and judicial scrutiny awaiting these propositions, the government has decisively charted a new course for the nation, one diverging significantly from the established norms of previous decades.
On December 12, Economic Minister Luis Caputo re-calibrated the official exchange rate from 376 to 800 pesos per dollar, concurrently elevating the "impuesto pais" (country tax) on imports from 7.5% to 17.5%. Moreover, a re-calibration of the effective export rate and a forthcoming 15% export tax await congressional approval. These measures were coupled with a 2% crawl rate for the official exchange rate and a reduction in the monthly intervention interest rate of the Central Bank from 11.1% to 8.3%.
In the economic arena, the government has swiftly achieved favorable outcomes, particularly in the financial markets. The parallel exchange rate experienced a decline followed by stabilization, country risk decreased, and stock prices ascended. Notably, the Central Bank augmented reserves through higher export liquidations compared to preceding months.
However, criticism abounds, particularly from economic pundits expressing dissatisfaction with Minister Caputo's measures, deeming them inadequate to stabilize the economy as promised during President Milei's campaign. While Milei had hinted at a stabilization plan involving dollarization and the eradication of the Central Bank, Caputo clarified that these promises remain intact, awaiting the completion of a price realignment, inflation suppression, and fiscal equilibrium.
In a de facto dollarized economy, the implementation of a stabilization plan hinges on eliminating capital movement restrictions and fostering a genuinely unified and free exchange market. Until these prerequisites materialize, maintaining a stable real exchange rate compatible with unhindered foreign trade becomes paramount.
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