Argentine President Milei Warns Economic Shock Unavoidable in Inaugural Speech

By Reuters
December 10, 2023Americas

BUENOS AIRES—Argentinian libertarian economist Javier Milei took office on Sunday, warning in his inaugural speech that he had no alternative to a sharp, painful fiscal shock to fix the country’s worst economic crisis in decades, with inflation heading toward 200 percent.

“There is no alternative to a shock adjustment,” he said on the steps on Congress after taking the presidential baton and sash, with crowds of supporters cheering despite Mr. Milei saying the economy would worsen in the short term. “There is no money.”

Mr. Milei, 53, is taking over from Peronist leader Alberto Fernandez, whose government was dogged by failures to rein in soaring prices.

“The outgoing government has left us on track towards hyperinflation,” Mr. Milei said. “We are going to do everything we can to avoid such a catastrophe.”

While the speech was light on details, he said key steps would include a fiscal adjustment equivalent to 5 percent of the country’s GDP through cuts that he said would fall on “the state and not the private sector.”

The wild-haired outsider marks a major gamble for Argentina: his shock therapy economic plan of sharp spending cuts has gone down well with investors and could stabilize the embattled economy, but it risks pushing more people into hardship with over two-fifths already in poverty.

However, voters—who drove Mr. Milei to victory in a November run-off against a ruling Peronist coalition candidate—have said they were willing to roll the dice on his sometimes radical ideas that include shutting the central bank and dollarizing.

“He is the last hope we have left,” said 72-year-old doctor Marcelo Altamira, who slammed “useless and inept” governments for years of boom-bust economic crises. The outgoing Peronist government, he said, “had destroyed the country.”

Boom and Bust

The challenges are huge. Argentina’s net foreign currency reserves are estimated at $10 billion in the red, annual inflation is 143 percent and rising, a recession is around the corner and capital controls skew the exchange rate.

Argentina has gone through boom-bust cycles for decades with money printing to fund regular deficits stoking inflation and weakening the peso. That has worsened in recent years as reserves have dwindled with a major drought earlier this year hitting main cash crops soy and corn.

If not tamed, inflation could reach 15,000 percent annually, Mr. Milei warned in his speech, pledging to “fight tooth and nail” to eradicate it. He also warned about a $100 billion debt “bomb.”

The major grains exporter needs to revamp a creaking $44 billion loan program with the International Monetary Fund (IMF), while Mr. Milei needs to navigate ties with trade partners China and Brazil, whom he criticized during the campaign.

Mr. Milei takes over from unpopular outgoing President Fernandez, but will need to negotiate with rivals as his libertarian coalition only has a small bloc in Congress. He has allied with the main conservative grouping.

That has already had an impact. He has moderated his tone in the last few weeks, packed his first Cabinet with mainstream conservatives rather than ideological libertarian allies, and on Sunday he did not mention dollarization in his speeches.

Later in the day he took action to make good on one campaign promise, announcing in a post on X that he had signed a decree to slash the number of ministries by half, from 18 to nine.

The move evokes one of Mr. Milei’s most memorable moments as a candidate, when a video went viral on social media showing him tearing down sticky notes with the names of ministries he aimed to close, shouting in Spanish “afuera”—out with you.

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

The moderate tilt has buoyed markets and reassured voters.

“I think he will do well. For legal and congressional reasons he’ll end up having to focus on more coherent things,” said Laura Soto, 35, a restaurant employee in Buenos Aires.

‘Change Was Necessary’

To fix the economic mess, Mr. Milei has chosen mainstream Luis Caputo to helm the economy ministry, with a close Caputo ally Santiago Bausili as the central bank chief.

Mr. Milei and Mr. Caputo are expected to lay out a more detailed economic plan early next week, which will focus on reducing spending and closing the fiscal deficit.

“We are going to put the country back on its feet and make Argentina great again,” Mr. Milei said in a later short address to supporters from the presidential palace balcony, echoing U.S. President Donald Trump’s slogan.

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

The ceremony’s guests included Ukrainian President Volodymyr Zelenskyy, who is expected to meet with Mr. Milei, Hungarian Prime Minister Viktor Orban, and a U.S. delegation.

Right-wing former Brazilian leader Jair Bolsonaro also attended, as well as Uruguay’s conservative leader Luis Lacalle Pou. Chile’s leftist President Gabriel Boric was also present, but leftists Luiz Inácio Lula da Silva of Brazil and Mexican Andrés Manuel López Obrador were some of the major absences.

In a sign of challenges ahead, state energy firm YPF hiked petrol pump prices this week by an average of 25 percent, with analysts and markets anticipating a sharp devaluation of the over-valued peso currency shortly after Mr. Milei takes office.

“We know in the short term the situation will worsen but then we will see the fruits of our efforts,” Mr. Milei said. “We don’t seek or desire the tough decisions that will need to be made in the weeks ahead, but unfortunately we have no choice.”

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