Argentina’s inflation crisis cooled in January, which President Javier Milei sees as a notable achievement thanks to his shock therapy economic plan. But his controversial endeavor to reshape the Argentinian economy is anything but straightforward as he struggles to pass reforms due to resistance from Congress. The inflation rate may also see a significant rebound over the next months.
Monthly inflation in Argentina was recorded by the National Institute of Statistics and Census of Argentina at 20.6% in January, down from 25.5% recorded in December and falling just short of a Reuters poll forecast of 21%. However, according to Reuters, poverty could continue to skyrocket before the economy stabilizes.
Assuming office in November amid chronic economic crises, where 50% of Argentines live below the poverty line and inflation in 2023 reached its highest in 32 years, the far-right president has presented radical policy proposals to remedy the profound economic challenges. He began his first term as President by devaluing the peso by more than 50%.
Javier Milei considers the inflation’s slowdown a consequence of his economic shock therapy plan. Faced with an annual inflation rate of over 250%, the libertarian economist slashed state subsidies and removed price controls. As a result, prices for transport have increased by 26.3% and by 44.4% for goods and services.
However, despite this initial improvement, the Organization for Economic Co-operation and Development (OECD) has predicted in its February 2024 Economic Outlook interim report that inflation in Argentina will increase by 251% in 2024, up from its 135% forecast in November. The economy is also expected to shrink by 2.3%.
Javier Milei’s omnibus bill
The president presented to Congress a divisive reform package to transform the economy and state. The sweeping package, known as the omnibus bill, incorporates elements of both public and private life; it will cut resources for the environment and culture, as well as increase penalties for social protests and introduce changes to divorce laws, among others.
Javier Milei has attempted to push through over 300 reforms in this single package, leading to significant criticism and resistance from both legislators and the public. According to the Buenos Aires Times, critics have declared the mega-bill as “unconstitutional.” Milei, however, sees no reason to compromise and has responded aggressively, branding his opponents as “useful idiots” and reducing the number of ministries by half.
In response, a series of protests have erupted against Javier Milei since January 24th, including a national strike organized by the General Confederation of Labor, the nation’s largest trade union.
Tensions with Congress
Although the omnibus bill was approved in Congress on February 2nd with 144 votes to 109, it was then rejected during an approval process and withdrawn from the lower house. The package is currently awaiting to be debated and re-written in the committees, but the president sees the damage is irreversible.
Javier Milei has accused governors of destroying the bill and has fired deputies, describing them as “traitors.” In a deliberate insult to Congress, the President has threatened to make his speech on March 1st on the steps of the palace rather than before the Legislative Assembly.
The President’s decision to ignore parliamentary activity and legislators’ concerns over the mega bill has increased tensions and led to a political setback due to his lack of cooperation. The Financial Times has emphasized the importance of market confidence in his reforms. Without legislative backing for a long-term fiscal plan, Milei will face considerable challenges and will have to rely on the government by decree. This move will further strain his relationship with Congress.
However, despite these fierce criticisms and protests, the International Monetary Fund (IMF) has expressed positive attitudes towards Milei’s fiscal package. The managing director, Kristalina Georgieva, welcomed the “decisive measures” as an “important step toward restoring stability and rebuilding the country’s economic potential.” The IMF has consequently agreed to an immediate disbursement of 4.7 billion dollars to “support the new authorities’ strong policy efforts.”
