Javier Milei's first week in power: Exploding prices, threats of repression and calm in financial markets | International

It is five o'clock in the afternoon in Buenos Aires, on Tuesday December 12th. Paola Orellana – a 51-year-old stylist – colors the hair of the only customer in her salon. She turns on the television that is in the corner, increases the volume and warns the second customer who comes in: “I turned it on to hear the announcements.” Argentina is waiting in uncertainty for the package of measures to be implemented government of President Javier Milei will begin. On December 10, the day of his inauguration, the far-right economist said on the steps of Congress that he was beginning a “new era” in the country.

Many want to know what the Argentina they were promised will look like. The intended change began last week with a devaluation of the currency that sent prices soaring. However, this did not shock the financial markets. While workers' and students' unions have already begun announcing mass demonstrations, Milei is quickly implementing a new protocol that will allow security forces to use tougher measures to suppress protests.

Milei's first week as president started a little late. The neoconservative arrived at the presidential palace on Monday, December 11, for his first cabinet meeting. No major economic announcements were made that day, while the central bank observed a holiday. Milei later attended a Hanukkah celebration – the only moment in his first week in power in which he spoke publicly. “We know that at this moment the forces of heaven will support Argentina and Israel.” He recently converted to Judaism and is now trying to bring his country closer to the Israeli government.

On Tuesday at five o'clock in the afternoon – as planned – the economic stimulus package did not arrive. Instead, Economy Minister Luis Caputo appeared on television two hours late to announce in a recorded message the first ten economic measures proposed by the new government. These include devaluing the peso by 50%, freezing all public works, cutting energy and transportation subsidies, laying off federal workers and imposing a 15% export tax. Caputo aims to reduce inflation to 20 to 30% per month while increasing tax revenue. There appears to be no proposal to compensate the population for the devaluation of their savings, although two social assistance programs – which reach 40% of the population living in poverty – are to be improved.

The most visible consequences became apparent just 24 hours after the announcement. The markets reacted calmly. The country's risk rating fell and the dollar – which circulates illegally and is a thermometer for the local economy – traded at 1,070 pesos per U.S. unit, up just 7% from the previous day. Nevertheless, prices shot up. Dealers across the country received messages from their suppliers announcing price increases of up to 175% in some cases. Lumberyards stopped all sales. A pound of meat cost 40% more. Oil company Shell increased fuel prices by 37%, while Aerolíneas Argentinas – the country's largest airline – adjusted ticket prices by 100%.

A customer in a store in Buenos Aires watches the television message from Economy Minister Luis Caputo, December 12, 2023. Anita Pouchard Serra (Bloomberg)

Prices dominated conversations on the streets of Buenos Aires. A man sent his wife a WhatsApp voice note on Thursday, 48 hours after the announcement: “There are no prizes [available] until the afternoon.” Two women on the sidewalk could not agree on the value of their food: “I bought a sweet bread, two [bottles of] Milk, oil, a bag of sugar and an alfajor… I spent 5,000 pesos,” said one. The other replied: “Compared to what I spent at the perfumery, it doesn’t seem like that much.” Another woman told a dealer: “It’s a rip-off, it’s embarrassing.”

Local newspapers also commented on the news. In the Río Negro province of Patagonia, it was reported that construction of “1,230 houses and 26 schools” was halted. In Misiones – in the tropical northeast of the country – it was said that the tourism sector (one of the province's main economic drivers) remained “on alert” in light of the announced measures. In Córdoba and Santa Fe, in the middle of Argentina, farmers and business people were divided between criticism and support for the government's measures.

Minister Caputo – who previously headed the Ministry of Economy between 2017 and 2018 – was named “Person of the Week” by the media. He gave his first television interview to reveal some details about the package, because details were missing – and still missing. In the days that followed, he also warned that dollarization and the closure of the central bank remained goals… even though the rest of the government remained virtually silent. Without saying a word in public, Milei continued to express positive reactions to the new measures on social media. Minister Sandra Pettovello – head of the newly created Ministry of Human Capital – also did not comment when the first questions about economic adjustment arose. However, during the campaign, Milei said she would be the only minister with carte blanche to offer financial support to “the fallen,” referring to Argentines devastated by the handling of the economic shock.

Between worry and hope

During the campaign, Milei warned that he would bring about major change if he came to power. At his inauguration on December 10, he reminded his supporters of this as they listened in silence. He justified his decisions by saying that Argentina was heading for an inflationary catastrophe and that there was “no alternative solution to adapt and adapt.” [economic] Shock.” This was a warning to prepare for difficult times.

“We hope he has a clear idea of ​​where we are going,” says Fernando, a 53-year-old businessman. “It will be difficult, it will not be pleasant, but we are happy, even if we have to try hard.”

Others are more worried. Luis, a 70-year-old pensioner, tells EL PAÍS that he needs to start saving for food. The pension he receives is around 130,000 pesos ($150) a month, half of what an individual needs to buy groceries. He still doesn't know how much he will receive next month. Silvia – a 37-year-old employee – is worried about the “catastrophic” rise in the cost of living as her salary “does not match rising prices”. She believes one of the biggest impacts will be the increase in public transport prices when government subsidies are removed in January.

A man holds up a newspaper with Milei's photo on the cover on December 11, 2023. Luis ROBAYO (AFP)

There is consensus among economists surveyed by EL PAÍS that the situation in Argentina is critical. But the experts also warn about the impact that the government's measures will have on the population. “This is a classic adjustment: it only leads to lower salaries and does not stabilize the economy,” complains Florencia Medici, researcher at the National Council for Scientific and Technical Research (CONICET). Leandro Mora Alfonsín – economist and professor at the University of Buenos Aires – also points to the “complete lack of an income adjustment policy”.

Trade unions and social movements also warned that the course taken would ruin Argentines. The General Workers' Union (CGT) – the main union in Argentina – called an emergency meeting following the government's announcement and issued a statement warning that macroeconomic “adjustment will be paid for by the people” and unions “will not “The left-wing organizations have called for a strike and a “big” rally in the Plaza de Mayo on December 20th.

“They should know that if they take to the streets there will be consequences,” was the government’s response. Security Minister Patricia Bullrich – who held the same portfolio during President Mauricio Macri's term from 2015 to 2019 – announced a tough plan against the protests. After Caputo, she became another protagonist of the week.

The new protocol against demonstrations calls for the four branches of the security forces dependent on the security ministry – the federal police, the national gendarmerie, the naval prefecture and the airport security police – to disperse demonstrations that block roads and critic routes. “They will use necessary and sufficient force, whatever the case may be [increased] in relation to the resistance,” Bullrich warned.

Javier Milei and Security Minister Patricia Bullrich during a campaign event.
MATIAS BAGLIETTO (REUTERS)

To this end, the new minister abolished the rules on police operations that were adopted during the term of office of former President Cristina Kirchner (2007-2015) to curb repression after a police operation in 2010 left two people dead. “Instead of restricting the use of police force, there is now permission to use violence against demonstrators,” criticized the Center for Legal and Social Studies (CELS). Social movements and parts of the opposition also reacted to this. Left-wing MP Myriam Bregman – who believes the decision is “completely unconstitutional” – has received threats on social media. “Prison or a bullet,” tweeted right-wing lawmaker José Luis Espert. He is a former ally of the president.

Other parts of the new government's plans are slowly coming to light. A decree was issued on the need and urgency of deregulation of the economy. The state vehicle fleet is to be reduced and two aircraft from the state oil company are to be sold. There is a proposal to combat money laundering and several ambassadors are about to be replaced. Meanwhile, the far-right ruling party has managed to win the presidency of the Senate by forming a coalition with center-right parties.

Manuel Adorni – the presidential spokesman – used his morning press conference to insist that many more measures will be announced “in the coming weeks.” He has also stressed that the proposed reforms will address “deep” problems within the economy. While President Milei refrained from speaking too much in public, he attended all Cabinet meetings and reiterated his support for Ministers Caputo and Bullrich.

On Friday, December 15, at 12 p.m., the president went live on Instagram and recorded from his office. His sister Karina Milei – now Secretary General of the Presidency – and a group of young people accompanied him. More than 115,000 viewers watched as he showed off his dogs' faces and raffled off his final salary as a lawmaker (he was elected to Congress in 2021). “Now I have a new job,” grinned Milei. The right-wing extremist former TV panelist has been sitting in the presidential chair for a week.

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