The new Argentine president Javier Milei's "Chainsaw Plan" has begun.
Forty-eight hours after his inauguration, the Argentine Minister of Economy, Luis Caputo, was in charge of announcing Milei's first ten economic measures, which stand out for the "sincerity" of the price of the dollar against the Argentine peso, a reduction in subsidies and a notable reduction of the state to reduce the fiscal deficit.
"We are facing the worst legacy in our history, with a Central Bank with a deteriorated imbalance sheet and with a huge fiscal deficit, repressed energy prices, tariffs," Caputo said during the announcement, in a message lasting more than 17 minutes.
Although it is a contingency plan with urgent measures, it is not yet a comprehensive economic plan. However, the immediate provisions suggest what the administration's strategy will be to try to alleviate the financial and inflationary crisis that Argentina is experiencing.
These are the ten measures:
Employment contracts in the state that are valid for less than one year will not be renewed
The minister of economy explained that this provision is needed because, in Argentina, public positions are secured "for friends and family" as political favors every time there are elections. In this way, many maintain their privileges despite eventual changes within governments. Therefore, new contracts will not be renewed.
The suspension of the official guideline for one year is decreed
In Argentina, the government directly pays the media to transmit its messages and propaganda. Milei chose to suspend these official guidelines for at least a year. Although, according to various local media, this measure may be definitive later.
"There is no money for expenses that are not strictly necessary and much less to support with money from average taxpayers that are created only to praise the virtues of the governments in power," Caputo justified.
Half of the ministries are eliminated, from 18 to 9, and the secretariats will go from 106 to 54
With this measure, the Milei Government fulfills one of its main campaign promises, seeking to control the fiscal deficit.
"This will result in a reduction of more than 50% of public service spending," explained Minister Caputo.
Minimize transfers to the provinces
According to the official, this urgent provision comes because "unfortunately, in our recent history they have been used as a bargaining chip to exchange political favors."
The national state will not request new bids for public works and will cancel existing bids and those that have begun
"There is no money," said Caputo, basically repeating what Milei has been saying in the media for weeks. The private sector will assume projects that have not started but have pending contracts, and, for now, all types of public works will be stopped.
Reduction of energy and transport subsidies
Minister Caputo justified this provision by explaining that the state "artificially maintains very low prices through subsidies. Politics always deceives people into believing that it puts money into people's pockets. But Argentines have already realized that these subsidies are paid with inflation. What is gifted on a ticket, is paid for at the supermarket."
Official dollar at 800 Argentine pesos
One of the big problems in Argentina is the exchange control that prevented Argentines from being able to exchange the official dollar outside the black market to a certain extent.
"We are going to establish the official exchange rate of 800 pesos. This will be accompanied by a provisional increase in the country's tax on imports and withholdings on non-agricultural exports. Once this emergency is over, we will move forward in the elimination of all import duties, which hinder Argentine development," Caputo said.
Elimination of the Import System of the Argentine Republic (SIRA)
The minister explained that Argentina will seek to de-bureaucratize and facilitate the mechanisms for importing South Americans into the country: "We will replace the SIRA import system with a statistical and import information system that will not require prior license information."
The Universal Child Allowance (AUH) will be doubled, and the Food Card will be increased by 50%
Although there are clear reductions in public spending and subsidies within the urgent measures, the Milei government also announced an increase in some state subsidies, including the AUH and the card to buy food.
"This is in line with what we said before, that we are going to strengthen the plans that go directly to the people, without intermediaries, and to the people who need it most," said Minister Caputo.
Maintain the "Promote Work" plans and maintain social policies without intermediaries
In line with the previous measure, the official explained that they will "strengthen social policies that are received directly by those who need them, without intermediaries."
The IMF gives the "go-ahead" to Milei's plan
Kristalina Georgieva, director of the IMF, reacted almost immediately to Javier Milei's contingency plan in a publication on X (formerly Twitter).
"I welcome the decisive measures announced by President Milei and his economic team to address Argentina's significant economic challenges - an important step towards restoring stability and rebuilding the country's economic potential," Georgieva said.
I welcome the decisive measures announced by President @JMilei and his economic team today to address 🇦🇷 Argentina’s significant economic challenges—an important step toward restoring stability and rebuilding the country’s economic potential.https://t.co/1zZRES9anE
— Kristalina Georgieva (@KGeorgieva) December 12, 2023
Meanwhile, Minister Caputo is expected to receive the bank officials on Wednesday before the markets open.
