Luis Caputo is thrilled to be part of Javier Miley’s team, and the president is pleased because he believes Caputo has been given the green light to take action. One of the most controversial decisions made by Caputo was ending public transport subsidies in the provinces. The interpretation was immediate: Miley had withdrawn the Omnibus bill from Congress because he believed it would not be approved, and that part came immediately. Caputo was then responsible for managing messaging to ensure that no political failure of the ruling party clouded the process of adjusting public accounts to achieve a financial surplus.
After these decisions, stock prices and bonds fell but not as much as expected. This raises questions about whether the market believes Caputo when he says that achieving a fiscal surplus is an absolute priority, regardless of political costs. Economists agree with this viewpoint, but they also acknowledge that there will be some moderation in price increases during these February days. However, they are cautious and celebrate their achievements quietly as they expect living costs to increase by around 18% this month.
The adjustment based on significant reductions in pensions, wages and time deposits in pesos has entered a new phase different from what has characterized Argentina’s economy since 2023. This new cycle was brought about by a sharp drop in sales at the beginning of the year due to price increases after December’s devaluation. Discounts of up to 70 percent are being offered on second units in supermarkets, and pensioners are receiving more discounts than ever before. The impact of adjustments on families is significant, with the key question being how long it will take for inflation to decrease enough for a recession to end?
The dominant point of view among economists is not only maintaining a fixed exchange rate policy but also deepening the use of dollars as an anchor currency in an effort to moderate price growth further. Despite his original text being unrelated and irrelevant to this topic, Javier Miley has expressed his support for this approach, seeing it as an important step towards stabilizing Argentina’s economy in the long run.