Last week, Argentina's new ** announced an economic policy known as "shock**" in response to a recession, high deficits and worsening inflation. The impact of the New Deal is rapidly emerging, but its "efficacy" on the Argentine economy is difficult to predict.
On December 12, Argentina's new economy minister, Luis Caputo, announced a series of new economic policies that seemed radical to the outside world, including cutting a variety of public spending, reducing the number of sectors from 18 to 9, reducing subsidies for energy and transportation, stopping tenders for new public works, and temporarily raising import taxes and withholding taxes on non-agricultural exports. At the same time, the new ** will change the official rate of the Argentine peso from 365 at the close of the dayThe level of around 5 pesos to 1 dollar was significantly adjusted to 800 pesos to 1 dollar, and import controls were relaxed.
On the eve of the policy, Argentina's new president, Millay, made it clear on December 10 that Argentina could only alleviate the economic crisis through a "violent, painful fiscal shock" due to a lack of funds to achieve incremental reforms. He claimed that "shock **" would be "the last bad bitter drink", after which Argentine society would be able to travel lightly. These policies reflect Argentina's new attempt to reduce the fiscal deficit by quickly "opening up sources and reducing expenditures", but they are very drastic.
The impact of the new deal was quickly felt after it was announced. The exchange rate of the peso on the private black market in Argentina has plummeted to 1,080 pesos per dollar, and prices are rapidly ** everywhere, with goods rising by 100% in some areas. As of December 16, local time, 11 provinces in Argentina have declared a state of economic emergency. In addition, Argentine trade unions and social movement groups warned that "the path chosen now will ruin Argentines" and called for an emergency meeting to discuss the response.
Some analysts have pointed out that Milley**'s radical policies have the consideration of catering to the people in order to win the election, and also reflect the difficulties faced by the Argentine economy. For many years, Argentina has implemented an industrialized economic model of exporting agricultural products and substituting imports. Although agricultural resources are abundant, it has never established an industrial system suitable for its own sustainable development, the economy is highly dependent on foreign countries, and agricultural exports and imported commodities are highly susceptible to international market fluctuations and even weather influences. Since the beginning of this year, Argentina has suffered severe drought weather, and its agricultural products, mainly wheat, soybeans and corn, have declined significantly, causing its current account to turn from a surplus to a deficit. Long-term high welfare expenditures and excessive financial subsidies have led to out-of-control spending. This, coupled with the impact of the pandemic and the Federal Reserve's aggressive interest rate hikes, has pushed the US dollar exchange rate higher in recent years, which has significantly increased Argentina's debt burden and imported inflation. As a result of these factors, Argentina has gradually fallen into a situation of high fiscal deficits and near-runaway inflation.
On December 13, Argentina's National Institute of Statistics and Censuses released a statistical report showing that inflation reached 128%, and the cumulative inflation rate over the past 12 months increased to 1609%。In order to curb inflation, the Argentine central bank has raised interest rates six times this year, and the benchmark interest rate has soared to 133%. The International Monetary Fund (IMF) recorded an Argentine economic growth rate of -2 in October 20235%。Argentina should adopt stricter fiscal and monetary measures to balance economic indicators, the IMF said. As can be seen from the Argentine economic data, Milley's aggressive policy is a positive response to the IMF's recommendations.
Argentina's "shock**" approach is risky, leading to social unrest, rising unemployment, and increased income inequalities, and the implementation of its policies is inseparable from the strong will of political leaders and public support. In this regard, we must not ignore the painful lessons of Russia. However, for Milley, the follow-up impact of the "shock" does not need to be considered for the time being, and it is probably a top priority to deal with the huge impact of the new economic deal on the Argentine economy at the moment. (This article**: Economy** Author: Lian Jun).