December 13, 2023 (MLN): Argentina will weaken its peso over 50% to 800 per dollar, cut energy subsidies, and cancel tenders of public works, new Economy Minister Luis Caputo said on Tuesday, economic shock therapy aimed at fixing the country's worst crisis in decades, Reuters reported.

Argentina’s central bank plans to devalue the peso by 2% per month, a senior government official with direct knowledge of the decision told Bloomberg.

Caputo said the plan would be painful in the short-term but was needed to cut the fiscal deficit and bring down triple-digit inflation, as he unveiled a package of measures after libertarian President Javier Milei took office on Sunday.

"The objective is simply to avoid catastrophe and get the economy back on track," Caputo said in a recorded speech.

He said the country needed to tackle a deep fiscal deficit he put at 5.5% of GDP, adding Argentina had a fiscal deficit for 113 of the last 123 years – the cause of its economic woes.

"We're here to solve this problem at the root," he said. "For this we need to solve our addiction to a fiscal deficit."

The South American country, a major grains producer, is battling inflation nearing 150%, central bank reserves deep in the red and two-fifths of the population in poverty. It has a wobbling $44 billion loan with the International Monetary Fund.

"I welcome the decisive measures," IMF chief Kristalina Georgieva said, calling it "an important step toward restoring stability and rebuilding the country's economic potential."

The IMF called the measures "bold" and said in a statement they would "help stabilize the economy and set the basis for more sustainable and private-sector led growth" following "serious policy setbacks" in recent months.

The country's foreign exchange and grains markets had been locked down on Tuesday as traders awaited the new government's economic plan. Banks had already anticipated a sharp devaluation, with some weakening their FX rate to 700.

Since 2019, Argentina's peso currency has been kept artificially strong by strict capital controls which create a wide gap between the official exchange rate of 366 per dollar and parallel rates as high as 1,000 per dollar.

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Posted on: 2023-12-13T09:45:29+05:00