Argentina’s new president begins ‘shock therapy’ by devaluing peso

Argentina’s new government has announced a sharp devaluation of the peso, cuts to energy and transportation subsidies and a freeze in spending on some major state programs.

The measures, announced on Tuesday in a televised appearance by the new minister of the economy, come as part of the “economic shock therapy” promised by the newly elected President Javier Milei.

The devaluation changes the official dollar exchange rate to 800 pesos per dollar from 365 pesos.

State support of the peso has been maintained by strict capital controls during the past half-decade, which created a wide gap between the official exchange rate of the dollar and parallel rates.

The new Economy Minister of Argentina Luis Caputo divulged in a televised message that the measures are aimed at tackling spiraling inflation and containing the worst economic crisis in decades.

According to Caputo, the plan will be painful in the short term but is vital for cutting the fiscal deficit and bringing down the triple-digit inflation the country is currently struggling with.

“The objective is simply to avoid catastrophe and get the economy back on track,” he stated.

The South American nation is currently struggling with a rampant inflation of 150%, low cash reserves and high government debt, while some 40% of its population is forced to live in poverty. Argentina has a massive $44-billion debt to the International Monetary Fund.

The IMF said in a statement that the measures were “bold,” adding that implementing them would “help stabilize the economy and set the basis for more sustainable and private-sector led growth” following “serious policy setbacks” in recent months.

“I welcome the decisive measures,” IMF chief Kristalina Georgieva said, calling it “an important step toward restoring stability and rebuilding the country’s economic potential.”