Argentine economy minister - who profited from last major devaluation - announces deep cuts, record devaluation

Argentina’s Economy Minister Luis Caputo announced a package of ten austerity measures Tuesday evening - chief among them a devaluation of the peso by a record 54%, taking the official wholesale dollar exchange rate from 366 pesos to 800 pesos.

The decision was part of a package mostly consisting of government cuts the minister said were to “neutralize the crisis and stabilize economic variables.”

The "shock" package also included deep cuts to provincial and social aid transfers, transport and energy subsidies, public works, pensions, and other cuts totaling 2.9% of GDP.

The program also included tax hikes of 2.2% of GDP - mainly through import and export tax increases (which Milei had loudly campaigned against), as well as a steep income tax increase by way of reduced standard deductions.

The cuts and tax hikes - which in a statistical table released by Caputo purports to eliminate the nation's budget deficit - fails to take into account the deep recession similar shock devaluations have inflicted on Argentina in the past.

Caputo said the devaluation — a 118% exchange rate jump — was to provide the agribusiness and industrial sectors “the appropriate incentives to increase production.”

Black and blue

It is the steepest devaluation of the peso since early 2002, when the Argentine peso plummeted after the 2001 foreign debt crisis - during which Caputo served as an adviser to then-Economy Minister Domingo Cavallo.

Cavallo - who endorsed newly-elected far-right President Javier Milei - became reviled for using US$13 billion in IMF loans to finance capital flight - only to then impose deep cuts and a bank withdrawal freeze that plunged the nation into riots and depression.

Later named Finance Secretary when Trump ally Mauricio Macri took office in late 2015, Caputo, 58, was among numerous Macri officials and relatives found to have purchased millions in dollar futures contracts ahead of Macri's 40% devaluation that December.

Caputo's Axis fund made US$50 million from betting on the move - a devaluation he himself arranged.

The country's perennial "blue" (black) dollar - which Milei had pledged to make redundant by lifting currency regulations - jumped 12% today to a record 1,115 pesos.

Retailers have meanwhile reported a dramatic 100% jump in wholesale prices - on top of 40% increases the week before Milei took office last Sunday, leading to hoarding and shortages.

At: https://buenosairesherald.com/economics/argentina-chainsaw-plan-revealed-deep-cuts-record-devaluation

Argentine Economy Minister Luis Caputo winces as he announces yesterday's "shock" measures - including deep budget cuts, steep tax hikes, and a record daily devaluation of 118%.

Caputo pledged that the measures would balance the budget and stabilize the nation's economy - already battered by a foreign debt crisis inherited from his former boss Mauricio Macri in 2019, as well as by a record drought last year and 150% inflation.

Similar shock measures in Argentina in the past have invariably resulted in deep recessions however, as well as a massive wealth transfer from working and middle classes to the country's notoriously tax-averse elite.