MILEI DESCRIBED A DEVASTATED ARGENTINA TO JUSTIFY THE SHOCK MEASURES TO COME
“There is no money” said, by way of a great summary, Javier Milei in his first speech after being sworn in as the new president of Argentina, this Sunday, December 10, 2023.
With his argumentation, Milei sought to justify the decisions that began to be taken today and that will continue in this and the following weeks.
There were illustrious witnesses in the front row, such as Felipe VI, King of Spain, Presidents Volodímir Zelenski (Ukraine), Vahagn Jachaturián (Armenia), Gabriel Boric (Chile), Luis Lacalle Pou (Uruguay), Daniel Noboa (Ecuador), Santiago Peña (Paraguay), Viktor Orbán (Hungary) and former presidents such as Jair Bolsonaro (Brazil). With them around him, with his followers in front, Milei painted a devastating picture of the Argentine economy.
And he “painted” two other pictures: one, with the general announcement that very hard measures will come for the Argentine society, without gradualism, measures that started to be known today and that will continue to be clarified this and next week. And, another picture, with a message of hope despite everything.
“THEY HAVE RUINED OUR LIVES”.
Mieli brought out the economist in him and presented the diagnosis of how Argentina is today in that field.
In his speech, which you can read in full at this link, Milei assured, among other things that:
“No government has received a worse inheritance than the one we are receiving. At the beginning, Kirchnerism boasted of having twin surpluses. This is fiscal and external surplus. Today it leaves us with twin deficits of 17 points of GDP”.
“Of those 17 points of GDP, 15 correspond to the consolidated deficit between the Treasury and the Central Bank. Therefore, there is no viable solution that avoids attacking the fiscal deficit.
“Of those 15 points of the fiscal deficit, 5 correspond to the National Treasury and 10 to the Central Bank. So the solution implies, on the one hand, a fiscal adjustment in the national public sector of 5 points of GDP, which, unlike in the past, will fall almost entirely on the State and not on the private sector.
“On the other hand, it is necessary to clean up the Central Bank’s interest-bearing liabilities, which are responsible for the 10 points of the Central Bank’s deficit. This would put an end to the issuance of money and, with it, to the only empirically true and theoretically valid cause of inflation.
“However, given that monetary policy acts with a lag of 18 to 24 months, even if we stop issuing money today, we will continue to pay the costs of the outgoing government’s monetary imbroglio. To have issued 20 points of GDP as was done by the outgoing government is not free. We will pay for it in inflation.
“Inflation could reach 15,000%”
Milei continued his economic explanation, which each time posed a more and more disastrous scenario. He said:
“Let’s remember that the Rodrigazo (an adjustment plan that took place in 1975) multiplied the inflation rate by 6 times, so a similar event would mean multiplying the inflation rate by 12 times and given that it has been traveling at a rate of 300% (monthly), we could go to an annual rate of 3,600%. At the same time, given the situation of the Central Bank’s interest-bearing liabilities, which is lower than it was before Alfonsín’s hyperinflation, in a very short time the amount of money could quadruple and thus take inflation to levels of 15,000% per year”.
Astronomical debt
“The debt for importers exceeds 30 billion dollars and the profits withheld from foreign companies reach 10 billion dollars.
“The debts of the Central Bank and YPF total $25 billion and the outstanding Treasury debt adds up to an additional $35 billion. This is the bomb in terms of debt at $100 billion that will have to be added to the nearly $420 billion of debt already existing.
Naturally, to these problems must also be added this year’s debt maturities, where debt maturities in pesos are equivalent to US$ 90 billion and US$ 25 billion in foreign currencies with multilateral credit organizations. However, with financial markets closed and the IMF agreement collapsed due to the brutal defaults of the outgoing government, the debt rollover is challenging even for the mythical Cyclops”.
The economy is not growing and wages are not enough
After the technical and macroeconomic explanations, the new president of Argentina began to talk about the direct impact on the pockets of the population:
“The Argentine economy has not been growing since 2011. And in line with the above, formal employment in the private sector remains stagnant at 6 million jobs, reaching the madness that the same has been exceeded by 33% by informal employment.
“Therefore, it should not surprise anyone that real wages have been destroyed, located around 300 dollars per month, which are not only 6 times lower than those of convertibility, but if the trend of those years had been maintained, or as they used to say, the damned neoliberalism, today they would oscillate between 3,000 and 3,500 dollars per month.
“They have ruined our lives. They have made us drop 10 times our salaries. So we shouldn’t be surprised that populism is leaving us 45% poor and 10% indigent.
It is not only the economy that is bad
On security, Milei assured:
“Drug trafficking slowly took over our streets to the point that one of the most important cities in our country has been hijacked by narcos and violence.
“Our security forces have been humiliated for decades, they have been abandoned by a political class that has turned its back on those who watch over us. Anomie is such that only 3% of crimes are convicted.
On education:
“6 million kids today at night will go to bed hungry, who walk barefoot in the street, and others who fell into drugs. The same happens in education.
“Only 16% of our children receive their education on time and in the right way. In turn, 70% of the children who do finish school cannot solve a basic math problem or understand a text. In fact, in the latest PISA evaluations, Argentina is ranked 66th out of 81, and seventh in Latin America. Being that Argentina was the first country to end literacy in the world.”
On health:
“In health, the system is completely collapsed. Hospitals are destroyed, doctors charge a pittance and Argentines do not have access to basic health care. So much so that, during the pandemic, if Argentines had done things like the average country in the world, we would have had 30,000 deaths. But thanks to the state of neglect and inefficiency, 130,000 Argentines lost their lives.”
On infrastructure:
“Only 16% of our roads are asphalted and only 11% are in good condition. Therefore, it is no coincidence that nearly 15,000 Argentines die every year in traffic accidents”.
“SHOCK MEASURES ARE INEVITABLE”
With the description of this disaster scenario, Javier Milei then raised the inevitability of shock measures, without gradualism.
“There is no alternative to adjustment and there is no alternative to shock. Naturally, this will have a negative impact on the level of activity, employment, real wages, the number of poor and indigent people.
“There will be stagflation, it is true, but it is not something very different from what has happened in the last 12 years. Let us remember that in the last 12 years the GDP per capita has fallen 15% in a context where we accumulated 5,000% inflation. Therefore, we have been living in stagflation for more than a decade.
“Therefore, this is the last bad drink to start the reconstruction of Argentina. And the better our containment from the Ministry of Human Capital, the better the situation will start to improve. That is, there will be light at the end of the road.”
And the shock decisions will come soon:
“We neither seek nor desire the tough decisions that will have to be made in the coming weeks. But unfortunately we have been left with no choice.
“However, our commitment to the Argentines is unalterable. We are going to take all the necessary decisions to fix the problem caused by 100 years of wastefulness of the political class.
Among the first decisions taken is the reduction from 18 to 9 ministries. What will happen to public employees? Milei’s spokesman, Manuel Adorni, said that the civil servants who contribute should not worry, according to Clarín newspaper. However, he said that they are determined to put an end to what he calls “militant employment”, that is to say, “those who are there for political reasons, do not contribute anything and take away productivity, salary and functions from the employee who wants to work”.
Another economic effect after Milei took office was the decision of the Central Bank of Argentina to strongly restrict the purchase of official dollars. Companies and savers will only be able to buy them with the authorization of the Central Bank’s board of directors. This is practically an exchange holiday, as explained by La Nación. It will be maintained, it is understood, until the new authorities make decisions on the matter. It should be recalled that Milei announced during his campaign his decision to close the entity, which is in charge, among other things, of issuing money.
IN SPITE OF EVERYTHING, MILEI AFFIRMS THAT THERE IS HOPE
After describing a country in a deep crisis and the need for measures that will affect everyone, the new Argentinean president sought, at the end of his speech, to convey a sense of hope.
“Even if it is hard at the beginning. We know that in the short term the situation will worsen. But then we will see the fruits of our efforts, having created the foundations for solid and sustainable growth over time. We also know that all is not lost. The challenges we face are enormous. But so is our ability to overcome them. It will not be easy. 100 years of failure will not be undone in a day. But one day begins. And today is that day.
“Today we begin to untie the path of decadence and begin to walk the path of prosperity. We have everything to be the country we always dreamed of. We have the resources, we have the people, we have the creativity and, much more importantly, we have the resilience to move forward.”
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