Argentina President Milei warns of inevitable economic shock in inaugural speech

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Argentina President Milei warns of inevitable economic shock in inaugural speech

BUENOS AIRES, Dec 10 (Reuters) – Libertarian Argentine economist Javier Milei took office on Sunday, warning in his first speech that he had no alternative to a brutal and painful fiscal shock to resolve the worst economic crisis that the country has seen for decades, with an inflation rate close to 200%.

“There is no alternative to a shock adjustment,” he said of the marches outside Congress after taking over and the presidential sash, to the applause of crowds of supporters, although Milei said the economy would deteriorate in the short term. ” There is no money. »

Milei, 53, a former television pundit who became famous for his expletive-filled tirades against rivals China and the pope, succeeds Peronist leader Alberto Fernández, whose government grappled with its inability to curb the surge prices.

“The outgoing government has put us on the path to hyperinflation,” Milei said. “We will do everything possible to avoid such a catastrophe. »

Although the speech was short on detail, he said key measures would include a fiscal adjustment equivalent to 5% of the country’s GDP through cuts that he said would fall to “the state and not the private sector.”

The wild-haired outsider represents a major gamble for Argentina: His shock therapy economic plan to sharply cut spending has been well received by investors and could stabilize the ailing economy, but it risks plunging further people in poverty, more than two-fifths of whom are already in poverty. .

However, voters – who led Milei to victory in a November runoff against a candidate from the ruling Peronist coalition – said they were willing to roll the dice on his sometimes radical ideas, including closing the central banking and dollarization.

“He is the last hope we have left,” said Dr. Marcelo Altamira, 72, who castigated “useless and incompetent” governments for years of boom-and-bust economic crises. The outgoing Peronist government, he said, “destroyed the country.”

BOOM AND BUST

The challenges are enormous. Argentina’s net foreign currency reserves are estimated to be $10 billion in the red, annual inflation is 143% and rising, a recession is looming, and capital controls are distorting the exchange rate.

Argentina has gone through boom-and-bust cycles for decades as it printed money to finance regular deficits, fueling inflation and weakening the peso. The situation has worsened in recent years as reserves have dwindled following a major drought earlier this year, which affected the main cash crops, soybeans and corn.

If left unchecked, inflation could reach 15,000% per year, Milei warned in his speech, pledging to “fight tooth and nail” to eradicate it. He also warned of a $100 billion debt “bomb.”

The top grain exporter must revamp a $44 billion loan program from the International Monetary Fund (IMF), while Milei must manage its ties with major trading partners China and Brazil, which it has criticized during the campaign.

Milei succeeds the unpopular outgoing center-left President Fernandez, but will have to negotiate with his rivals because his libertarian coalition only has a small bloc in Congress. He allied himself with major conservative groups.

This has already had an impact. He has moderated his tone in recent weeks, filling his first cabinet with traditional conservatives rather than libertarian ideological allies, and on Sunday he did not mention dollarization in his speeches.

Argentina will also remain a member of the Paris Agreement on climate change, Milei’s new climate diplomat told Reuters on Sunday, despite his past comments that global warming was a hoax.

This moderate tilt stimulated markets and reassured voters.

“I think he’ll do well.” For legal and parliamentary reasons, he will have to focus on more coherent things,” said Laura Soto, 35, a restaurant worker in Buenos Aires.

She added that some more radical social ideas he talked about during the campaign were also unlikely to come to fruition, including easing gun regulations and reopening the debate over abortion, which was legalized in Argentina yesterday. three years ago.

“A CHANGE WAS NECESSARY”

To address the economic disorder, Milei chose 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, which will focus on cutting spending and reducing the budget deficit.

“We will put the country back on its feet and make Argentina great again,” Milei said in a brief speech to supporters from the balcony of the presidential palace, echoing former US leader Donald Trump’s slogan.

“It’s the end of the populist night and the rebirth of a prosperous and liberal Argentina. »

Guests at the ceremony included Ukrainian President Volodymyr Zelenskiy, who is expected to meet Milei, Hungarian Prime Minister Viktor Orban and a US delegation.

Former Brazilian right-wing leader Jair Bolsonaro was also present, as well as Uruguayan conservative leader Luis Lacalle Pou. Left-wing Chilean President Gabriel Boric was also present, but Brazilian leftists Luiz Inácio Lula da Silva and Mexican Andrés Manuel López Obrador were among the notable absences.

In a sign of the challenges ahead, state-owned energy company YPF this week raised gasoline prices at the pump by an average of 25%, with analysts and markets anticipating a sharp devaluation of the overvalued peso soon after he takes office. Milei.

“We know that in the short term the situation will get worse but then we will see the fruits of our efforts,” Milei said. “We neither seek nor desire the difficult decisions that will have to be made in the coming weeks, but unfortunately we have no choice. »

Report by Nicolas Misculin and Miguel Lo Bianco; Additional reporting by Jorge Otaola, Walter Bianchi and Candeleria Grimberg; Editing by Adam Jourdan, Shri Navaratnam, Marguerita Choy and Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

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