CAffair Miley He didn’t waste any time. Forty-eight hours after taking office on December 10, Economy Minister Luis Caputo, a former banker, unveiled measures to cut public spending by 3% of GDP. gross domestic product. He devalued the peso, pledged to reduce subsidies, and abolished nine of 18 government ministries. One week later, Miley issued a decree allowing the privatization of state-owned enterprises, the abolition of price controls, and the reform of labor laws.
In the midst of Argentina’s worst economic crisis in two decades, this flurry of activity aims to push the budget into surplus (before interest payments) by the end of 2024. International Monetary FundThis has been noted by Argentina, which owes $43 billion. On January 10, it agreed to resume payments to the Argentine treasury, noting that Miley’s government had “moved quickly and decisively” to “restore macroeconomic stability.”
But in addition to his pursuit of financial rectitude, Miley is doggedly determined to destroy what he calls “the class,” a network of corrupt politicians, business cronies, media hounds, and, most importantly, powerful unionists. On December 27, he sent a sprawling “comprehensive” bill to Congress, aimed at “liberating the productive forces of the nation from the shackles of the oppressive state.” It will allow Meli to rule by decree for two years, change Argentina’s electoral system, and impose prison sentences of up to six years on those who organize protests that obstruct transportation or damage property. All the better to break the class. After one month of Miley’s presidency, the social class began to fight back.
Lawyers are angry at plans to speed up divorce proceedings through the civil registry without requiring their services; Doctors hate the new requirement to preferentially prescribe generic drugs. Artistic types protest the closure of the National Theater Institute and the National Endowment for the Arts. Fishermen object to the removal of regulatory restrictions on permits. Sugar producers object to plans to remove tariff barriers on imports. Football clubs are maneuvering to evade plans to transform themselves into limited companies in order to attract investment from what Miley calls “Arab groups”.
But no group is more affected by, or more angry about, Milley’s shock therapy than Argentina’s trade unions. His labor reforms would set them back by requiring employees to choose union membership, rather than collecting dues automatically as is the case today. This would leave the unions out of pocket.
They are leading the retreat. The day after Mr Miley pledged to “break the shackles of the oppressive state”, the General Labor Union (CGT), the largest union group in Argentina, called a national strike on January 24. This is a record time for an Argentine president to urge such action. Mr Miley will face a general strike just 44 days into his term; The Argentine president spends an average of 692 days. Unions are fighting through the courts as well. On January 3, a court suspended the labor reform chapter of the emergency decree, in response to an injunction filed by the Ministry of Labor. CGT.
Labor unions are an essential component of the system that Miley seeks to tear down. They are strong and durable, and often run like family businesses. Take, for example, the truck drivers union. It has had the same president, Hugo Moyano, for 36 years. His eldest son was appointed co-president of the union. A daughter and another son sit on the board, while another son runs a separate union set up for toll collectors. Then he became a member of Congress. The family owns football clubs and runs a political party. They have been investigated on charges of corruption, money laundering, and fraud, but few investigations have resulted in charges being brought against them. The Moyanos, who can freeze the transportation of food and gasoline across the country, seem untouchable so far.
Markets were initially euphoric about Miley’s plans. Bond prices reached their highest level in two years after the emergency decree was announced. But since then, investors have begun to question the political viability of Miley’s project.
Union opposition is not the only obstacle. In order to achieve a primary surplus, Caputo wants not only to reduce public spending, but also to increase annual revenues by 2% of GDP. gross domestic product. It aims to build the central bank’s net foreign exchange reserves, which stand at $7 billion in the red. It would do this by increasing taxes on imports and exports, and by using a creeping peg to the dollar, which devalues the peso by 2% each month.
But Congress has yet to approve tax increases, and revenues are dwindling. Argentina is in recession. last year gross domestic product It shrank by 2.7%, according to the World Bank, largely due to historic drought. Miley’s devaluation and lifting of price controls would fuel inflation and deepen Argentina’s recession, at least in the short term. This combination means that by the time the taxes are collected, their value will have decreased. Ecofuse, a Buenos Aires consulting firm, estimates the government could lose 0.8% of GDP. gross domestic product in tax collections in 2024. Populist protests have also hurt revenues. In September, before the presidential election, Peronist candidate Sergio Massa – who was also economy minister at the time – abolished income taxes, which represented approximately 11% of government revenues.
Many analysts are beginning to fear that a 2% creeping peg might be enough, with prices rising more quickly than expected. The annual inflation rate exceeded 211% in December, which is higher than the rate in Venezuela. The peso is weakening again in the country’s black market, which provides a way around currency controls. If another sharp devaluation is on the horizon, prices could rise further.
It would also be difficult to pass much of the comprehensive bill in its current form. Even with the support of center-right parties, Miley cannot muster a majority in Congress, which also threatens higher taxes. However, he is trying to play hard. Congress can either do the right thing and pass its law, or devote itself to “destroying the lives of Argentines,” Miley says.
The mastermind behind much of this cutting and burning, Federico Sturzenegger, the former central bank chief who advises Milley, appears unfazed. He says the government is just getting started. In an interview with BloombergHe said the administration will send another bill to Congress soon to repeal 160 “ridiculous” regulations. He boldly claimed that the only way to change Argentina’s corrupt economic structure was to “disarm” it and “drain its resources.” This will not satisfy the likes of Moyano, his descendants and the social class in the country.■