Argentina to devalue peso by over 50% as part of emergency economic reforms

A worker receives Argentine peso banknotes in a shop in Buenos Aires, Argentina, on Tuesday, Sept. 26, 2023.

A worker receives Argentine peso banknotes in a shop in Buenos Aires, Argentina, on Tuesday, Sept. 26, 2023.Erica Canepa/Bloomberg/Getty ImagesNew YorkCNN — 

Argentina will devalue the peso by more than 50% as part of emergency measures to help the nation’s struggling economy, the country’s Economy Minister Luis Caputo announced Tuesday.

The stark move changes the official conversion rate to 800 pesos per dollar from 365 pesos and comes just days into President Javier Milei’s term.

Milei campaigned on a pledge to get rid of the peso and replace it with the dollar in order to get the economy back on track. The peso has been artificially supported for years by strict capital controls, and its value has plunged roughly 52% this year against the US dollar.

Argentina’s central bank in recent years has printed more of the peso to help the country’s government avoid defaulting on its debt. That has resulted in skyrocketing prices.

The move marks the first of several steps to tamp down that hyperinflation, which led Argentina’s central bank in October to raise its benchmark interest rate to 133%.

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Caputo on Tuesday reiterated Milei’s campaign theme that “there is no money” as he outlined other measures, including a cut to new public works projects, plans not to renew labor contracts that have been in effect for than one year and reducing energy and transportation subsidies.

“For a few months we’ll be worse off, particularly with inflation,” he said.

Regarding public works, Caputo said that “there’s no money to pay for works that often end up in the pockets of politicians and business people.”

The International Monetary Fund said Tuesday following Caputo’s remarks that it supports the new initiatives.

“IMF staff welcome the measures announced earlier today by Argentina’s new Economy Minister, Luis Caputo. These bold initial actions aim to significantly improve public finances in a manner that protects the most vulnerable in society and strengthen the foreign exchange regime,” Julie Kozack, IMF director of communications, said in a press release.

A plan for sweeping economic measures

In his victory speech Sunday, Milei provided few details of his economic plan. But the self-declared “anarcho-capitalist” — who wielded a chainsaw on the campaign trail to symbolize his plans to cut state spending — promised “drastic” reforms.

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“I want you to be aware that we are going to begin the reconstruction of Argentina after more than a hundred years of decline, redrawing the ideas of freedom, although we are going to have to endure a period of hardness, we will move forward,” Milei, an economist, told the crowd as he was sworn into office.

While Caputo did not mention any plans Tuesday to get rid of the peso, dollarizing the South American country’s economy would require Argentina to exchange all pesos held by residents and businesses for dollars and assign a dollar value for all assets and contracts.

That would effectively take the role of governing the country’s monetary policy — the power to control interest rates and print money — from the Central Bank of Argentina to the US Federal Reserve.

bevy of challenges that looms over a potential bid to dollarize Argentina, key among which are the fact that it doesn’t have enough dollars to cast away the peso, and it’s unlikely that the transition would single-handedly save the country’s crisis-stricken economy.

While other countries have taken this step — including Ecuador, El Salvador and Panama — none have been as large as Argentina.

Milei has already met with top US officials since he took office and his economic team has worked with the IMF on modifying the country’s foreign policy and revitalizing its economy.

CNN’s Hanna Ziady and Anna Cooban contributed to this report.

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