Argentine President Milei Shocks With Plan To Dismantle Central Bank Amid Skyrocketing Inflation, IMF Backs Move

Argentine President Javier Milei raised the stake on Thursday, announcing plans to dismantle “sooner or later” the country’s central bank. This radical remark, revealed in an interview with Radio La Red, aligns with Milei’s ultra-libertarian ideology and fulfills a bold campaign promise that could push Argentina’s economic landscape towards the dollarization.

“They voted us to govern and put the Argentine economy in check. Surveys on the image and government measures are accompanying us. We have set a course and we are fulfilling it,” Milei stated. This declaration comes amidst a backdrop of soaring inflation and significant economic challenges.

Argentine’s Inflation Runs Out of Control: Up Over 200% In 2023

Data released in December 2023 reveals a shocking inflation increase, recording a monthly rise of 25.5% and an annual jump of 211.4% — Argentina’s highest in 30 years. These figures place Argentina behind only Venezuela, among Latin American countries, regarding price hikes in 2023.

However, the inflation spike is mainly attributed to the devaluation of the peso, which plummeted 50% against the dollar in November, a move orchestrated by Milei’s Finance Minister Luis Caputo in his first day of office.

Despite these alarming numbers, Milei had previously stated that a 25% inflation rate would signify a successful implementation of his government’s economic policies.

The Global X MSCI Argentina ETF ARGT saw a modest increase of 0.2% following the inflation data and Milei’s remarks. This ETF, which tracks Argentine stocks, has risen roughly 20% since Milei’s election win in November. However, it has dipped by about 9% from its December peak, following the Argentine Congress’ tempering of some of Milei’s more radical economic proposals.

Argentina Reaches Agreement With IMF

The International Monetary Fund (IMF) announced Wednesday to have reached a staff-level agreement with Argentine authorities on the seventh review under Argentina’s EFF arrangement, totaling $44 billion. Pending approval by the IMF Executive Board, Argentina could access approximately US$4.7 billion.

The IMF has praised President Milei’s quick and decisive actions to implement a robust policy package aimed at restoring macroeconomic stability.

They anticipate that the initial stages, including the elimination of legacy price controls and the correction of FX misalignment, will lead to inflationary pressure and a deeper contraction in activity.

However, they expect a gradual disinflation process, accompanied by a strengthening external position and eventual recovery in output, demand, and real wages.

Milei Heads To Davos

Milei is scheduled to attend the World Economic Forum in Davos, Switzerland, from Jan. 15-19, 2024. This event brings together political and business leaders from around the globe, offering Milei a platform to showcase his unconventional economic strategies on the world stage.

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Javier Milei Image Via Wikimedia Commons