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Argentina: Minister Luis Caputo announced President Javier Milei's austerity plan with the official exchange rate set at $800
The official exchange rate is set at $800 with an estimated monthly adjustment of 2%. At the same time, the PAIS tax increases to 17.5%, bringing the importer's dollar to $940 (official exchange rate plus 17.5% PAIS tax). Meanwhile, dollars for export will have a 15% retention (80% MULC and 20% CCL), resulting in a value of $860, and the card dollar will be $1320 (30% PAIS tax, 35% income tax, and elimination of Personal Assets tax).
The Minister of Economy, Luis Caputo, revealed the first measures of the austerity plan, outlining the economic strategies under President Javier Milei's government. The announcement includes fiscal, monetary, and exchange rate decisions to address the current economic and financial crisis.
Key Measures of the Plan:
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Devaluation and Exchange Rate Adjustment: The government will devalue the official exchange rate from 366 to 800 pesos starting tomorrow, a leap of 118%. Afterward, the official exchange rate will adjust by 2% monthly, serving as a currency "anchor."
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PAIS Tax Increase: The PAIS tax is raised to 17.5%, bringing the importer's dollar to $940 (official exchange rate plus 17.5% PAIS tax). Exported dollars will have a 15% retention (80% MULC and 20% CCL), resulting in a value of $860. The card dollar will be $1320 (30% PAIS tax, 35% income tax, and the elimination of Personal Assets tax).
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Suspension of Renewal of Contracts Under One Year: The renewal of state contracts with less than one year of validity will be avoided, addressing a common practice of appointments before the end of a term.
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Drastic Reduction in Government Advertising: The National Government's advertising budget will be suspended for a year, reflecting considerable savings compared to the 2023 expenditure of $34 billion.
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Ministries and Secretariats Restructuring: The number of ministries will be reduced from 18 to 9, and secretariats from 106 to 54, aiming for a 50% reduction in hierarchical positions and a 34% reduction in total political positions.
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Change in Discretionary Transfers to Provinces: Discretionary transfers to provinces will be minimized, eliminating historical practices of political exchange for resources.
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End of New Public Works Bidding: There will be no new public works bidding, and approved projects without development will be canceled. Infrastructure will be executed through the private sector due to a lack of state funds.
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Subsidy Reduction for Energy and Transportation: Subsidies for energy and transportation will be reduced, acknowledging that subsidies distort economic reality and contribute to inflation.
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Honesty in the Exchange Rate at 800 Pesos and PAIS Tax Increase: To encourage production, the official exchange rate will be adjusted to 800 pesos, and the PAIS tax on non-agricultural imports and exports will be temporarily increased.
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Elimination of Import Prior Authorizations (SIRA): Pre-import licenses will be replaced by a statistical and informational system, eliminating discretion in the process.
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Significant Increase in AUH and Tarjeta Alimentar: The Universal Child Allowance (AUH) will be increased by 100%, and the Tarjeta Alimentar by 50%, focusing direct support on those who need it most.
Objective of the Plan: Caputo, in his message, warned about the economic inheritance and the urgency to redirect the economy to avoid possible hyperinflation. He emphasized that these measures, under the Motosierra Plan, aim to prevent a catastrophe and stabilize the economy in a context of fiscal, monetary, and exchange rate disarray.
Finally, the Minister highlighted that, although inflation may temporarily worsen, these actions are necessary to build a solid economic foundation and eliminate the threat of historic inflation figures in the future.