Argentina devalues peso over 50% as economic crisis bites

Argentina has announced a sharp devaluation of its currency and cuts to energy and transportation subsidies as part of shock adjustments new President Javier Milei says are needed to deal with an economic "emergency."

Economy Minister Luis Caputo said on Tuesday in a televised message the Argentine peso will be devalued by 50 percent from 400 to the US dollar to 800 pesos to the dollar.

"For few months, we're going to be worse than before," he said, two days after the libertarian Milei was sworn in as president of the second largest economy in South America and immediately warned of tough measures.

He said politicians had long supported the subsidies to "deceive people into believing that they are putting money in their pockets. But as all Argentines will have already realised, these subsidies are not free, but are paid with inflation."

He compared the country's chronic "addiction" to spending more than it earns to a household budget and said the country had posted a fiscal deficit for 113 of the past 123 years.

"If we continue as we are, we are inevitably heading towards hyperinflation."

"What we come to do is the opposite of what has always been done ... to solve this problem at its roots, precisely so that we do not have to suffer these consequences anymore, so that we do not have to suffer more inflation, so that we do not have to suffer more poverty," said Caputo.

Other cuts

Other spending cuts he announced include the suspension of all state advertising for a year — which he said had cost 34 billion pesos in 2023.

In addition, "The state will not tender any more new public works, and will cancel approved tenders whose development has not yet begun.

"The reality is that there is no money to pay for more public works that, as all Argentines know, often end up in the pockets of politicians or businessmen on duty."

He said the private sector would carry out infrastructure projects in the future.

Another measure would be cancelling the renewal of public jobs contracts that were less than a year old.

Milei said the country didn't have time to consider other alternatives.

Argentina is suffering 143 percent annual inflation, its currency has plunged, and four in 10 Argentines are impoverished.

The nation also has a yawning fiscal deficit, a trade deficit of $43 billion, plus a daunting $45 billion debt to the International Monetary Fund, with $10.6 billion due to the multilateral and private creditors by April.