Javier Milei's First Week as President: A Bold Start
His first week didn't disappoint me: Here's why.
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The Third Angle is run by Juan Aranovich, an economist from Argentina, managing editor of Unchained, and crypto enthusiast.
Javier Milei's first week as the President of Argentina has been nothing short of eventful. With a promise of ushering in a new era, Milei has embarked on a series of ambitious reforms aimed at reshaping the country's economic and political landscape.
First Reforms and Measures
Milei's administration has significantly downsized government bureaucracy, cutting down ministries, secretaries, and sub-secretaries, and reducing the number of government officials by 34%. These measures reflect a commitment to shrinking the size of government and reducing fiscal expenditure.
Economically, the focus has been on stabilizing the tumultuous financial environment. The banks, amidst rumors about the disarmament of Leliqs, shifted significant funds from Leliqs to Pases (repos). However, with the Central Bank of Argentina (BCRA) lowering the repo rate while maintaining the Leliq rate, banks found themselves in a dilemma. They now face a striking rate difference of 33 percentage points, having moved over $10 trillion pesos from Leliqs to Pases, which they cannot revert.
Furthermore, Milei's administration has also cut energy and transportation subsidies, doubled the Universal Child Allowance (AUH), and increased the Alimentar Card by 50%. This dual approach of subsidy reduction and direct support aims to address immediate social needs while encouraging economic rationalization.
One of the most significant economic steps has been the alignment of the exchange rate. The gap between the Dollar blue (the illegal one) and the Official rate has been narrowed, and the export dollars have been unified to boost trade. Additionally, the import quota system (SIRA) has been eliminated. The SIRA system was one of the most corrupt things that ever existed in Argentina.
The government has also launched a new Protocol Against Pickets, imposing strict rules against street blockades, with severe penalties for non-compliance. This measure is aimed at maintaining public order and ensuring the uninterrupted flow of economic activities. Here, we can see that the campaign slogan “El que las hace las paga” or “He who does them, pays for them,” is coming to reality.
Milei's government has embarked on a sweeping audit of state contracts, putting under scrutiny contracts with universities and the state workforce. In a move to cut down political expenditure, Milei's administration has slashed the number of official drivers and vehicles by half and has put up for sale two YPF planes previously used as 'taxis' by ex-officials. Artworks from the Quinta de Olivos are being moved to a museum to eliminate insurance costs.
The administration has also launched a dollar bond to address the commercial debt left by Massa and to withdraw pesos from the market. These measures, while aiming to stabilize the economy, come with their own set of challenges.
According to Juani Fernandez's analysis, Milei's plan is in its first phase of 'Damage Control + Stabilization' for 2024/2025. The primary goals are to avert uncontrolled hyperinflation, neutralize fiscal imbalance, bring inflation down to single digits, and deregulate as much as possible. However, even if successful, Milei's plan may reach its limits by 2025. The country might still face stagnation due to fiscal asphyxiation, a situation where it's not profitable to produce, leading to minimal investment and growth.
For real development, drastic reduction in public spending, especially at the provincial level, is crucial. This requires significant institutional reform, a daunting task given the need for widespread support from governors and lawmakers.
My thoughts
As I conclude my analysis of President Javier Milei's first week in office, I can't help but express my optimism regarding the proactive steps his administration has taken. During his campaign, skeptics doubted Milei’s ability to enact the radical changes he proposed. Yet, merely a week into his tenure, he has already demonstrated a firm commitment to reshaping Argentina's economic landscape.
Milei's decisive actions to downsize the state apparatus, reduce spending, and tackle the parasitic fiscal deficit are commendable. These measures send a strong and positive signal to the markets, laying the groundwork for what could potentially be an economic resurgence for Argentina. The reduction in government size and expenditure, alongside the strategic economic reforms, are crucial steps towards stabilizing the economy and attracting investment.
In his inaugural speech, Milei was candid about the challenging times ahead, preparing the nation for the tough but necessary journey towards economic recovery. His honesty and clarity in communication are crucial in setting realistic expectations and fostering a sense of shared responsibility and resilience among Argentinians.
However, one aspect that has caught my attention is the unexpected performance of the dollar blue. With inflation estimates soaring to around 20% per month, it’s surprising that we haven’t seen a more pronounced run on the blue dollar. This anomaly in the currency market, amidst the backdrop of high inflation, is something that warrants closer observation and analysis.
Overall, Milei’s first week in office marks a significant departure from conventional political and economic strategies. While the road ahead is undoubtedly fraught with challenges, the initial steps taken are promising and could very well be the catalyst that propels Argentina’s economy towards a period of robust growth and stability.