President Javier Milei of Argentina is embarking on a bold and unconventional currency policy aimed at tackling the country’s crippling inflation crisis. Under his leadership, the monthly devaluation of the peso has slowed significantly, sparking both praise and concerns among economists and business leaders.
Here are key points about Milei’s currency strategy and its implications:
- Slow Devaluation: The official exchange rate of the peso weakened by only 2 per cent per month last year, despite a staggering 117 per cent increase in consumer prices. This caused the peso to appreciate more than any other currency in real terms, raising worries about the competitiveness of Argentine businesses.
- New Approach: Starting in February, the central bank announced that the devaluation would further slow to 1 per cent per month. This move is seen as an attempt to stabilize the economy and maintain control over inflation.
- Inflation Control: Milei’s austerity measures have led to a significant drop in the monthly inflation rate, from 26 per cent in December 2023 to 2.7 per cent in December 2024. This reduction is one of Milei’s notable achievements amidst the country’s economic turmoil.
- Economic Reforms: Milei aims to lift Argentina’s strict currency and capital controls by 2025, a move that could attract foreign investors and promote economic growth. However, critics point out that this could lead to a real appreciation of the peso and endanger the central bank’s foreign currency reserves.
- Competitiveness Concerns: The slower devaluation may impact Argentina’s export revenue, especially with Brazil’s currency weakening and global prices for key exports like soybeans remaining low. This puts pressure on Milei’s currency strategy and raises the stakes for the country’s economic stability.
- Long-term Vision: Milei believes that maintaining Argentina’s competitiveness requires deregulating the economy, reducing taxes, and cutting corporate borrowing costs, instead of relying solely on currency devaluation. While risks remain, the government sees the strides made in controlling inflation as a necessary step towards economic recovery.
In conclusion, President Milei’s currency policy is a balancing act between stabilizing the economy, attracting foreign investment, and ensuring long-term growth. The success of his efforts on inflation control will be key in determining Argentina’s economic future and its standing in the global market.
