Javier Milei’s Government is going through its best moment since he took office. The financial dollar, the thermometer of the local market, has decreased steadily in recent months (-25%), after reaching a maximum peak of 1,450 pesos per dollar at the beginning of July. Hand in hand with the fall of the dollar, a sustained reduction in country risk (the indicator associated with the ability to pay public debt) and a sustained increase in the stock market was also observed, which is close to historical highs.
What changed from the beginning of July to today? The Government could appeal to its main workhorse, having managed to balance the public accounts and stop the issuance of money that involved financing the high fiscal deficit that the Frente de Todos management had left. But he had already achieved that several months before.
The reality is that what changed was the market’s perception of the Government’s ability to meet foreign debt payments for next year. Until July, doubts were very high, because the Central Bank did not have sufficient reserves (when discounting its short-term liabilities, they were in negative territory for more than 4,000 million dollars), and this was enhanced by the fact that it systematically had to intervene in the exchange market – selling dollars – to sustain the exchange rate.
But, from there, the change was observed. In the middle of the bullfight, the Government adopted a measure of pragmatism, going against its own discourse of non-intervention in the markets, and announced that, from that moment on, the Central Bank would intervene in the financial dollar market, with the objective to contain it. This measure allowed the waters to calm for a couple of weeks. At the beginning of September, the Government launched a money laundering program that was extremely successful, given that some $20 billion entered the local financial system (for reference, that represents 65% of the Central Bank’s gross reserves). As can be seen from the attached graph, this was what explained the sustained reduction in the financial dollar.
The increase in devaluation expectations had also put a brake on the sustained reduction in inflation that had been observed since the beginning of the La Libertad Avanza Government. Between May and August, the Consumer Price Index (CPI) recorded four consecutive months with inflation around 4% monthly, confirming its stagnation.
The stabilization of the financial dollar, together with the decision to reduce the Country tax by 10 percentage points at the beginning of September (which is taxed on most imported inputs and goods), made it possible to break the inflationary barrier. As can be seen in the graph, a reduction in inflation was observed in both September and October, reaching the lowest level in three years.
From the above, the euphoria of the Government in recent weeks is clear, emboldened by Trump’s victory in the United States, for whom Milei had explicitly campaigned.
However, the weak link in the economic program remains the real economy, in particular the purchasing power of society. The drastic increase in the exchange rate – over 120% – that the Government applied as soon as it took office and its consequent inflationary acceleration caused a tremendous drop in income, the highest since the 2001 crisis. As the months went by, As inflation began to decline, income began to recover, but in a quite uneven way.
The salary of the formal private sector (which represents 38% of total employees) was the one that showed the greatest capacity for recovery, explained by the different mechanisms that unions have through joint negotiations to update their income based on the inflation. Despite this, they are currently still, on average, 4% below the levels of the previous year.
Public sector salaries (which represent 25% of the total) suffered the “chainsaw”, which led to a harsh initial cut that was then moderated slightly as the months went by. This made its purchasing power currently 20% lower. On the informal private sector side (which represents 37% of the total), its difficulty in measurement makes it difficult to have updated data (the statistics agency publishes it, but with considerable delay). The last one available is from April, which shows a drop of 23% and a dynamic similar to the evolution of the public sector.
Finally, retirees (65% earn the minimum salary) were the ones who suffered the greatest drop, although the Government later decided to modify the formula with which they are updated (so that it is a function of inflation), which allowed a faster recovery, although insufficient. They are currently 13% below the levels of the previous year.
In short, currently there is a disconnect between people’s income and the results that the Government is achieving in terms of exchange stability and reduction of inflation. However, for now society seems to value the latter more than the former (the vast majority of surveys and/or indicators of the Government’s image remain at high levels), which could be interpreted as an individual sacrifice in pursuit of a better future. The issue is that that better future arrives.
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* **How has Javier Milei’s economic program impacted Argentina’s financial markets?** [[1](https://www.ft.com/content/dfd94c80-47d2-4b34-a382-e6fe2c244361)]
## Interview: Milei’s Argentina – A Balancing Act?
**Introduction:**
Welcome to World Today News. Today we delve into the complex economic landscape of Argentina under President Javier Milei. We’re joined by [Guest 1 Name], an economist specializing in Latin American markets, and [Guest 2 Name], a social activist focused on the impact of economic policies on everyday Argentines.
**Section 1: Market Stability and the Financial Landscape**
*The article highlights a significant decline in the financial dollar and a reduction in country risk since July. It also notes Milei’s pragmatism in intervening in the market despite previous non-interventionist rhetoric.
**Questions:**
* **[Guest 1]** Can you elaborate on the government’s market interventions and their impact on stabilizing the financial dollar? Should these interventions be considered a success?
* **[Guest 2]** How does this newfound stability translate for ordinary Argentinians? Are they feeling the positive effects, or are other economic factors overshadowing these gains?
**Section 2: Inflation and the Cost of Living**
*The article mentions a decrease in inflation following the stabilization of the financial market and a reduction in country tax on imports.
**Questions:**
* **[Guest 1]** To what extent is the reduction in inflation sustainable? What are the potential risks and challenges for maintaining this downward trend?
* **[Guest 2]** How are Argentinians experiencing the reduction in inflation? Are they seeing real improvements in their purchasing power, or is the cost of living still a major concern?
**Section 3: Social Impact and Economic Inequality**
*The article underscores the uneven recovery of different income groups and the significant disparity in purchasing power despite improvements in macroeconomic indicators.
**Questions:**
* **[Guest 1]** What are the long-term consequences of the current economic policies for different socioeconomic groups?
* **[Guest 2]** How are these inequalities manifesting in Argentine society? Are there potential social unrest or mobilization driven by these disparities?
**Section 4: The Road Ahead**
*The article concludes by questioning the sustainability of the current situation.
**Questions:**
* **[Guest 1]** What are the key factors that will determine the success or failure of Milei’s economic program in the long term?
* **[Guest 2]** What are the potential risks and opportunities for Argentina in the coming months and years?
**Closing:**
The situation in Argentina is undeniably complex. While there are some positive signs in terms of market stability and inflation, the consequences for everyday citizens remain a crucial concern. As we move forward, it is essential to consider diverse perspectives and engage in open dialogue to ensure that economic policies lead to a more equitable and prosperous future for all Argentines.
