Argentina braces for economic shock package as peso shackled

By Jorge Otaola and Walter Bianchi

BUENOS AIRES (Reuters) – Argentina’s new government will lay out its economic “shock” therapy plans on Tuesday afternoon in a bid to rein in triple-digit inflation and rebuild depleted foreign currency reserves, with markets and ordinary Argentines on tenterhooks about the impact.

Economy Minister Luis Caputo will announce the measures after markets close around 5 p.m. (2000 GMT), the spokesman for libertarian President Javier Milei, who took office on Sunday, told a news conference.

They are expected to include sharp cuts to state spending, a reduction of the size of the public sector and a potential sharp devaluation of the local peso. The currency is currently kept artificially strong by strict capital controls.

The measures would be in “in-line” with Milei’s campaign pledges, where he often appeared with a chainsaw to represent his planned cuts, presidential spokesman Manuel Adorni said, adding it was needed to avoid “deeper catastrophe”.

On Tuesday trading in the peso in the official market was expected to be very restricted, as it had been on Monday, with the central bank allowing trades only on a priority basis, a source from the bank told Reuters.

The person said that “the exchange rate movement will be the same as yesterday until the measures are announced”.

Analysts polled by Reuters expect the official exchange rate to weaken sharply in the near future to around 650 per dollar, from around 365 currently. In parallel markets dollars trade for closer to 1,000 pesos.

The central bank’s new leadership was confirmed overnight in the official gazette, formalising the appointment of Santiago Bausili, a close ally of Caputo, to replace outgoing bank president Miguel Pesce.

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