In an effort to spur its struggling economy, Argentina has decided to devalue its peso by more than 50%.
On Tuesday, Luis Caputo, the country’s economy minister, said the change would be made as an emergency measure. The official conversion rate for Argentina’s peso will now be 365 pesos per dollar, from 800 per dollar.
The move comes only a few days after new President Javier Milei took over control of the country. One of Milei’s campaign pledges was to replace the peso altogether with the dollar, in an effort to get Argentina’s economy on the right path.
For years now, there have been strict controls on capital in the country, which has artificially supported the peso. But, in this year alone, the value of its currency has dropped about 52% against the U.S. dollar.
Devaluing the peso, as shocking as it is to many, is sure to be only the first of many steps that Milei’s new administration is going to take to stop hyperinflation. The central bank of Argentina increased its benchmark interest rate all the way to 133% in October to help curb inflation.
Other things that are on the table in Argentina are cutting any new projects related to public works, not renewing any labor contract that hasn’t been in effect for more than one year, and reducing subsidies for things such as transportation and energy.
“For a few months, we’ll be worse off, particularly with inflation,” Caputo said. “There’s no money to pay for works that often end up in the pockets of politicians and business people.”
Somewhat surprisingly, the International Monetary Fund threw its support behind Argentina’s move on Tuesday, saying that it was in support of the initiatives that Milei’s government is taking.
Cutting spending was a central theme of Milei’s campaign run for president. He was often seen wielding a chainsaw while out and about, which symbolized how much he was gearing up to cut back on spending.
President Javier Milei's first act in office was an order cutting the Argentine gov from 21 departments down to 9.
The Chainsaw Plan is now a reality. pic.twitter.com/SUCEJrvMUj
— End Wokeness (@EndWokeness) December 11, 2023
He has promised many “drastic” reforms that could hurt in the short term but are meant to ease Argentina’s economic pain in the long run.