Annual inflation in Argentina exceeds 200% as Javier Miley faces the crisis

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The Argentine statistics agency said on Thursday that the annual inflation rate in Argentina reached 211.4 percent in December, which confirms the depth of the economic crisis facing the country and its new liberal president, Javier Miley.

On a monthly basis, prices rose on average by 25.5 percent in December, compared to an increase of 12.8 percent in November. This rate is the worst since 1991, when Argentina was emerging from a period of hyperinflation.

Argentina's chronic high inflation stems largely from previous governments' reliance on printing money to finance spending — a practice that Miley objected to during her election campaign. But price pressures intensified in December when Milli lowered the artificially high official exchange rate for the peso by 54 percent and allowed price-fixing agreements to expire. Both movements particularly affected food prices.

Economists said December's monthly interest rate was likely to be close to the peak of Argentina's current inflation crisis, with a deepening recession likely to slow further rises. The International Monetary Fund expects Argentina's economy to contract by 2.5 percent in 2024.

Fernando Marol, director of financial consultancy FMyA, noted that Argentina's purchasing power fell by about 10 percent on average last December, as wages rose more slowly than prices. Meanwhile, a regular survey of retailers conducted by the Association of Medium-Sized Enterprises in Argentina reported a 13.7 percent drop in sales in December compared to the same month in 2022.

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Inflation and economic activity will remain “terrible” through at least January and February, Marol said. “Then, if Miley’s economic plan works, we should start to see a rebound.”

Miley launched what he called “shock therapy” economic reforms, and Economy Minister Luis Caputo unveiled spending cuts and tax increases in December aimed at eliminating the fiscal deficit this year. Miley also issued a sweeping presidential decree to liberalize large swaths of the economy.

The president faces a long list of obstacles to implementing his plan, including legal challenges to the decree, a planned general strike by labor unions for later in January and a battle to approve the reforms in Congress, where Miley's coalition has a small minority.

Analysts say the impact of spending cuts, especially the phasing out of energy and transportation subsidies, will increase the risk of disruptive protests in the coming months.

After several weeks of relative calm following the devaluation of the Mali currency, the gap between official and black market exchange rates, a closely watched indicator of market confidence in the government, has widened from 18 percent to 30 percent since the beginning of the year.

Adding to the government's woes is a ruling on Thursday by US Federal Judge Loretta Presca, who ruled last year that Argentina must pay $16 billion to two now-defunct investors in the energy company YPF after the government refused to buy its shares at an agreed-upon price. When the company was expropriated in 2012.

Presca said Thursday that prosecutors may begin trying to seize the country's assets to recover their award, after Argentina failed to meet a Jan. 10 deadline to provide guarantees pending its appeal. Miley said that while Argentina has a “willingness to repay” its obligations, it would currently be impossible for the country to provide guarantees or hand over the $16 billion, given its economic situation.

However, the International Monetary Fund provided a boost to the government on Wednesday, temporarily agreeing to disburse $4.7 billion of Argentina's $43 billion loan.

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