BUENOS AIRES, Dec 10 (Reuters) – Argentine libertarian economist Javier Milei took office on Sunday and warned in his inaugural speech that he had no alternative to a sharp, painful financial shock to resolve the country's worst economic crisis in decades , with inflation heading towards 200%.
“There is no alternative to a shocking adjustment,” he said on the steps of Congress after accepting the presidential baton and sash. Crowds of supporters cheered even as Milei said the economy would deteriorate in the short term. “There is no money.”
Milei, 53, a former TV pundit who rose to fame with tirades against rivals, China and the Pope, takes over from Peronist leader Alberto Fernandez, whose government has been prevented from curbing rising prices.
“The outgoing administration has put us on the path to hyperinflation,” Milei said. “We will do everything we can to prevent such a catastrophe.”
While the speech was light on details, he said that key steps would include a fiscal adjustment equal to 5% of the country's GDP through cuts that he said would hit “the state and not the private sector.”
The wild-haired outsider marks a big gamble for Argentina: His shock therapy economic plan with drastic spending cuts is well received by investors and could stabilize the struggling economy, but risks putting even more people in need, with over two-fifths already in poverty life .
However, voters who carried Milei to victory in a November runoff against a ruling Peronist coalition candidate have said they are willing to accept his sometimes radical ideas, which include closing the central bank and dollarization.
“He is the last hope we have left,” said 72-year-old doctor Marcelo Altamira, who criticized the “useless and incompetent” governments of years of economic crises with booms and busts. The outgoing Peronist government “destroyed the country,” he said.
Boom and bust
The challenges are huge. Argentina's net foreign reserves are estimated to be $10 billion in the red, annual inflation is 143% and rising, a recession is just around the corner and capital controls are distorting the exchange rate.
Argentina has endured decades of boom-bust cycles, printing money to finance regular deficits, fueling inflation and weakening the peso. That has gotten worse in recent years as reserves have declined and a major drought earlier this year hit key crops, soy and corn.
If inflation is not curbed, it could reach 15,000% a year, Milei warned in his speech, pledging to “fight with all our might” to eradicate it. He also warned of a $100 billion debt bomb.
The major grain exporter must overhaul a faltering $44 billion loan program with the International Monetary Fund (IMF), while Milei must manage relations with key trading partners China and Brazil, which he criticized during the election campaign.
Milei takes over from the unpopular outgoing center-left President Fernandez, but will have to negotiate with rivals as his libertarian coalition only has a small bloc in Congress. He has allied himself with the main conservative group.
This has already had an effect. He has softened his tone in recent weeks, filling his first Cabinet with mainstream conservatives rather than ideological libertarian allies, and on Sunday he made no mention of dollarization in his speeches.
[1/10]Argentina's new Vice President Victoria Villarruel and Argentina's President Javier Milei hug during their swearing-in ceremony at the National Congress in Buenos Aires, Argentina, December 10, 2023. REUTERS/Matias Baglietto ACQUIRE RIGHTS
Later in the day, he took action to fulfill a campaign promise, announcing in a post on X that he had signed a decree halving the number of ministries from 18 to nine.
The move recalls one of Milei's most memorable moments as a candidate, when a video went viral on social media showing him tearing off sticky notes with the names of ministries he wanted to close while angrily shouting “afuera” in Spanish. Get out – call.
Argentina will also remain part of the Paris climate agreement, Milei's new climate diplomat told Reuters on Sunday, despite his previous comments that global warming was a hoax.
The moderate tilt has boosted markets and reassured voters.
“I think he will do well. For legal and congressional reasons, he will ultimately have to focus on more coherent things,” said Laura Soto, 35, a restaurant worker in Buenos Aires.
She said some more radical social ideas he talked about during the campaign were also unlikely to be implemented, including relaxing gun regulations and reopening debate on abortion, which was legalized in Argentina three years ago.
“CHANGE WAS NECESSARY”
To sort out the economic chaos, Milei appointed mainstream Luis Caputo to head the economy ministry, with close Caputo ally Santiago Bausili as central bank chief.
Milei and Caputo are expected to present a more detailed economic plan early next week that will focus on reducing spending and closing the budget deficit.
“We will get the country back on its feet and make Argentina great again,” Milei later said in a brief address to supporters from the balcony of the presidential palace, echoing former U.S. leader Donald Trump’s slogan.
“It is the end of the populist night and the rebirth of a prosperous and liberal Argentina.”
Guests at the ceremony included Ukrainian President Volodymyr Zelensky, who is expected to meet Milei, Hungarian Prime Minister Viktor Orban and a US delegation.
The right-wing former Brazilian head of state Jair Bolsonaro and Uruguay's conservative head of state Luis Lacalle Pou were also present. Chile's leftist President Gabriel Boric was also present, but leftists Luiz Inacio Lula da Silva of Brazil and Mexico's Andres Manuel Lopez Obrador were among the biggest absentees.
In a sign of the challenges ahead, state energy company YPF raised pump prices by an average of 25% this week as analysts and markets expect a sharp devaluation of the overvalued peso currency soon after Milei takes office.
“We know that the situation will worsen in the short term, but then we will see the fruits of our efforts,” Milei said. “We do not seek or desire the difficult decisions that will have to be made in the coming weeks, but unfortunately we have no choice.”
Reporting by Nicolas Misculin and Miguel Lo Bianco; Additional reporting by Jorge Otaola, Walter Bianchi and Candeleria Grimberg; Editing by Adam Jourdan, Shri Navaratnam, Margaret Choy and Nick Zieminski
Our standards: The Thomson Reuters Trust Principles.
Comments are closed.