Argentina’s new president immediately reneged on inflation promise

When fiery Argentinian president Javier Milei took office this month, he closed half the government ministries during his first day at work. The move gave some citizens hope that he would fulfill his campaign promises — including stabilizing the economy, currency, and even hinting at crypto-forward policies in the future.

Unfortunately, he has already reneged on a major campaign promise to reduce inflation. Instead, Javier Milei doubled inflation overnight.

Within 24 hours of assuming the presidency, he devalued the Argentine peso’s official exchange rate against the US dollar from 366.5 pesos per dollar to 800 pesos per dollar.

Like most countries with a high inflation rate, Argentina has an official exchange rate plus a variety of informal rates. We refer to the official exchange rate, in which Milei’s administration dramatically caused inflation.

There are also a variety of other unofficial, “street” exchange rates in Argentina. For example, Argentina’s Blue Dollar rate is a catch-all term for unofficial, peso/dollar rates offered by non-government brokers.

The government does not control Blue Dollar rates, which are only offered in informal venues like “cuevas.” After Milei’s administration devalued its official exchange rate, Blue Dollar rates persisted at even worse rates — as they have for decades — and continued to decline, albeit at a slower rate.

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Many people view Blue Dollar rates, which are not officially recognized, as more indicative of the Argentine peso’s true value. If tracking the value of the Blue Dollar over the same 24 hours, the rate of inflation in the peso did not double overnight, despite it more than doubling in the official exchange rate.

The country’s economy minister, Luis Caputo, said in a televised statement that Argentina would target a further monthly devaluation of 2%. To be clear, that is an official forecast to inflate.

Argentina praised by IMF amid ‘temporary’ inflation hike

Over two-thirds of Argentina’s population lives in poverty. The annual rate of inflation is now at 161%, according to November figures shared on Wednesday. The readout is both president Milei’s first since taking office and the highest figure of this year.

Inflation is set to get worse. However, Caputo said the negative effects are necessary now for prosperity later. “The objective is simply to avoid catastrophe and get the economy back on track,” Caputo said. “There is no more money.”

The International Monetary Fund, of course, praised the country’s reduction of government spending. IMF’s managing director, Kristalina Georgieva, called it “an important step toward restoring stability and rebuilding the country’s economic potential.”

Argentina’s central bank was expected to announce a new monetary policy yesterday.

Update December 15, 16:05 UTC: Added context after paragraph 3 to clarify how inflation doubled as per official rates rather than informal, Blue Dollar rates.

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