Argentina announced on Tuesday a sharp devaluation of its currency. Economy Minister Luis Caputo said the Argentine peso will be devalued by 50%, with the exchange rate shifting from 400 pesos to the US dollar to 800 pesos to the dollar.

According to the Associated Press, the announcement came two days after Javier Milei was sworn in as president and immediately warned of implementing tough measures to deal with an economic emergency.

(Photo : Tomas Cuesta/Getty Images)
BUENOS AIRES, ARGENTINA - DECEMBER 05: Argentine pesos are seen on a backpack on December 04, 2023 in Buenos Aires, Argentina. President-elect Javier Milei of La Libertad Avanza will take office on Sunday 10, replacing incumbent peronist Alberto Fernandez.

Worsening Economic Conditions of Argentina

In a televised remark, Luis Caputo acknowledged the challenges ahead, saying that Argentina will "be worse than before" for a "few months."

The devaluation is reportedly a drastic move to address the nation's economic turmoil, marked by soaring inflation of 143%, a sharply depreciating currency, and a high poverty rate that affects four in 10 Argentines. 

Additionally, Argentina is grappling with a substantial fiscal deficit, a sizable trade deficit of $43 billion, and a massive $45 billion debt owed to the International Monetary Fund (IMF), with $10.6 billion due to the multilateral and private creditors by April, according to AP.

Caputo also outlined additional measures by the new administration, which include canceling tenders for public works projects, reducing state jobs to streamline the government, and cutting energy and transportation subsidies. 

The new administration also aims to streamline the government by reducing the number of ministries from 18 to 9. These actions are part of shock measures to address the fiscal deficit, which is reportedly the root cause of the country's economic challenges.

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IMF's Response to Bold Measures of Argentina

The IMF welcomed Argentina's bold measures, saying that they lay a solid foundation for further discussions regarding the nation's debt with the institution. 

IMF spokesperson Julie Kozack noted that the decisive implementation of these measures would contribute to stabilizing the economy, protecting vulnerable segments of society, and fostering more sustainable, private-sector-led growth. 

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