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Argentina starts devaluing national currency as part of economic 'shock therapy'

Argentina starts devaluing national currency as part of economic 'shock therapy' President of Argentina Javier Milei (Getty Images)

Argentina's government has announced its intention to devalue the national currency peso by over 50% against the U.S. dollar, marking a pivotal move in what President Javier Milei terms "economic shock therapy" to address the country's severe crisis, according to BBC and Reuters.

Economy Minister Luis Caputo says he "inherited the worst economic legacy in Argentina's history", outlining substantial cuts to public spending. These include reductions in fuel and transport subsidies, as well as a freeze on spending for select major government contracts and advertising.

Caputo announced a plan to slash the exchange rate to 800 pesos per U.S. dollar, down from around 391 pesos.

"We are going to be worse off than before for a few months, particularly in terms of inflation. And I say that because, as the president says, it is better to tell an uncomfortable truth than a comfortable lie," Caputo said in a TV address.

He notes the need to address a substantial fiscal deficit, estimating it to be 5.5% of the GDP, that Argentina has grappled with for 113 out of the last 123 years, attributing it as the root cause of the country's economic difficulties.

The International Monetary Fund (IMF), to which Argentina owes $44 billion, has lauded the government's "bold" measures.

"I welcome the decisive measures," IMF chief Kristalina Georgieva said, adding that it is "an important step toward restoring stability and rebuilding the country's economic potential."

Inflation in Argentina

Argentina grapples with rampant inflation, soaring by approximately 150% in the last year, coupled with low cash reserves, substantial government debt, and 40% of the population living below the poverty line.

Since 2019 Argentina artificially maintained a strong currency through strict control, leading to a wide gap between the official exchange rate of 366 per dollar and parallel rates as high as 1,000 per dollar.

New Argentina's president

Javier Milei is a newly elected Argentina president who assumed the presidency on December 10 and will hold the position until 2027. President of Ukraine Volodymyr Zelenskyy flew to Argentina and participated in the inauguration of the new president.

The politician describes himself as an "anarcho-capitalist," advocating for the non-intervention of the state in economic activities and pushing for significant spending cuts.

He has already reduced nine government ministries, a move expected to eliminate 34% of public sector jobs.

Read more about the new Argentina president in an article on RBC-Ukraine.