A mini-Summit on January 5, 2023 was attended by the new president of Argentina, Javier Millay. The reason for the meeting he had with the technical staff of the International Monetary Fund (IMF), which took place on the very day that the price of gasoline rose by 27% and meat, a staple food in Argentina, was subject to quotas after the liberalization of exports.
The IMF mission in Buenos Aires will negotiate the terms of payment of the next loan tranche, totaling 46 billion dollars – in addition to the macroeconomic restructuring program. The Minister of Economy Luis Caputo and the head of the Cabinet Nicolas Posse started the negotiation.
At the center of the talks was the payment of the two installments of the Extended Fund Facility credit that expires in January, amounting to 1.9 billion dollars, as well as the main objectives of the reform package presented to the Argentine Parliament.
A debt swap to the country’s banks that could exceed $71 billion in interest-bearing peso bills maturing in 2024 has been proposed in that context. Argentina will issue new peso bonds in February to swap them for maturing securities in 2024 (please read the analysis titled “Argentina: Issuing Perpetual Bonds for ‘Haircuts’ Without ‘Haircuts‘).
Debt “bequeathed” by Mauricio Macri
Javier Milei is preparing to negotiate new terms with the IMF to service a billion-dollar debt, largely inherited from Mauricio Macri’s government. The executive power guarantees dialogue and openness to “all those” who intend to support the reform course.
In fact, it is already receiving the first positive signs from other forces. The critical point is the social impact of the first economic policy measures implemented by the government.
At least in the short term, mainly due to the initial relaxation of controls on the dollar’s exchange rate, inflation will continue to rise (it currently stands at 140%). At the same time, the last government’s social safety nets will be drastically reduced. A first crash test will take place on January 24, with the general strike announced by the General Confederation of Labor (CGT).
Argentina’s decision to not participate in BRICS was justified
Meanwhile, another subversive and completely wrong move by the President of Argentina was his refusal to join the BRICS (Brazil, Russia, India, China and South Africa). On January 1 he should have formalized Buenos Aires’ entry into the economic alliance, but the Argentine leader wrote a letter to all the bloc’s heads of state highlighting the difference in approach to “foreign policy issues” compared to the government of its former president Argentine, Alberto Fernandes.
Loyal to the “Western” powers, the United States and Israel first and foremost, Javier Millay’s Argentina does not consider it a “must” to join a Group deemed too sensitive to the interests of the Chinese “communist regime”.
Argentina was invited to join the bloc – along with Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates – at the end of the meeting held last August. Millay’s first “problem” comes from two federal courts in Argentina, which have heard many unconstitutionality appeals against the government’s major deregulation and privatization decree.
They have been tried by a Labor Court which accepted the demands of the main CGT union against the deregulation of contracts and a Federal Court which accepted a general appeal for unconstitutionality brought by a municipal employee. The constitutionality of the more than 300-article order introduced by Millay before Christmas, which came into effect on December 29, will also be considered by the High Court – but only after it returns from its summer break in February. In the meantime, all legal acts of the decree will remain in force even in the event of a future unconstitutionality crisis.
The President of Argentina is not backing down
It is recalled that Javier Millay repeals or amends 30 laws: from laws requiring food retailers to carry at least five different brands of cookies and to dedicate 5% of each aisle to products from “family, rural or indigenous farms to others, much more important.
It also opened the door for the privatization of 33 state-owned companies. Another change opens up the market to competition in previously protected industries and sectors.
In the 83-page package is a clause that could also lay the groundwork for the dollarization of the economy. It stipulates that contractual obligations and debts can be expressed and settled in a foreign currency – even if it is not legal tender in Argentina. The executive order contains several other provisions, including the choice of generic drugs over brand-name drugs and important labor market reforms.
Severance pay is abolished and replaced by unemployment benefits, which are reduced. Workers can also be fired if they take part in strikes that prevent people or goods from entering or leaving the workplace, while workers in “essential” sectors, including health and education, are required to provide 75% of services even if they are on strike.
In addition, the presidential decree weakens the power of labor unions. For example, union members currently pay part of their health insurance premiums into a social security fund administered by the union. The measure ends union participation.
However, Mr Millay has indicated that he does not intend to stop at these reforms.
As he has pointed out, his government wants to lift capital controls within months. His government also wants to introduce a bill to shrink the size of the state.
