Luis Caputo during a press conference in 2018 in Buenos Aires (AFP/Archives/EITAN ABRAMOVICH)
Argentine President-elect Javier Milei announced Wednesday that he had chosen a former Finance Minister for the Economy portfolio but dashed hopes of a rapid recovery for his country plunged into a deep crisis, citing future stagflation.
Aged 58, Luis Caputo, an economist, former trader on the New York Stock Exchange, was also briefly at the head of the central bank under the presidency of liberal Mauricio Macri (2015-2019).
He accompanied Javier Milei for two days in the United States, where the future head of state – who must be inaugurated in twelve days – met advisors to American President Joe Biden. Mr. Caputo also participated in a technical meeting with the International Monetary Fund (IMF).
Recently, Javier Milei called Mr. Caputo “the best finance expert in the country.”
“When we look at the nature of Argentina’s problems, when we see that out of the 15 points of budget deficit (according to Javier Milei, Editor’s note), ten come from the central bank, it is clear that the first problem to solve is that of the Leliqs” , he told La Red radio. And, according to him, Luis Caputo is best suited for this.
Leliqs are a short-term debt instrument issued in pesos by the central bank to support the national currency. But, for Mr. Milei, they are currently at a level of insolvency that threatens Argentina with “hyperinflation”.
Under the mandate of Mauricio Macri, the Minister of Finance Caputo was in particular credited in 2017 with the so-called “centenary bonds” operation, an issue of 100-year bonds which had found takers on the capital markets, a signal then considered positive despite the crisis the country is going through.
Once again since his election on November 19, Javier Milei has tempered hopes for a rapid recovery of the Argentine economy, the third largest in Latin America, mired in inflation of 143% over one year and a chronic lack of foreign exchange reserves.
– Aid to the “vulnerable” will continue –
The rise in prices “will remain high” because “it is already affected by what has been done in monetary policy over the last two years”, he said, criticizing the monetary issue of the outgoing government.
In addition, his absolute priority of budget cuts with a view to “balance, non-negotiable”, will negatively affect GDP, he conceded.
“There is going to be stagflation because, when you put the budget in order, it will have a negative impact on economic activity,” he warned.
For 2023, the IMF in its latest projections predicted a contraction in GDP of 2.5%.
Once again, Mr. Milei estimated the time needed “to put an end to inflation” at between 18 and 24 months, once order returns to the budget.
However, he assured that social assistance would be maintained to cushion the impact of budget cuts.
“The only wallet that will remain open” will be that of the future “Ministry of Human Capital”, to compensate for the possible “negative effects on the social level” of these measures and provide support to the most “vulnerable” people, a- he said.
On the other hand, he suggested that he was going to attack organizations and social movements, which, according to him, “force people to demonstrate”.
Argentina has 40% of people below the poverty line and 51% receive some form of subsidy or social assistance.
Looking back on his stay in Washington, Javier Milei assured that it had gone “much better than we hoped”. He notably assured that Mr. Caputo had received an “excellent” welcome at the IMF, which “perfectly understands the challenge” of Argentina.
This country is struggling to repay a debt of 44 billion dollars contracted with the Fund, the legacy of a loan granted in 2018 under the Macri presidency.
An ultraliberal and “anti-system” economist, with controversial positions on climate change and abortion in particular, Javier Milei won a resounding victory in the presidential election against the outgoing Minister of the Economy, the centrist Sergio Massa.
© 2023 AFP
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