Luis Caputo: 10 Economic Measures for Argentina (Speech, translated to English)

Good afternoon to all Argentines. First, I want to thank all of our voters and also those who didn’t vote for us. That is what democracy is about, and freedom. Thanks again to the president for having confidence in my team in a tough moment like this that we’re facing. We’re definitely facing the worst inheritance in our history. A country in which Argentines are getting more poor, with a fiscal deficit over 5.5% of GDP, with a Central Bank with a balance sheet that is absolutely deteriorated, without dollars in assets and with the equivalent of 3 liabilities. A monetary production in these 4 years of more than 20% of GDP, which right now is driving inflation towards 300% annually, and which punishes Argentines every day. Repressed prices on energy, tariffs, the dollar, which you all are paying between a half and a quarter of its real value. Debts of more than $400 Billion between liabilities of the Central Bank, debts of the treasury, import debts, retained utilities, and debts with multilateral credit organizations. If we continue as we are, we will inevitably head towards hyperinflation. We can, as the president said in his speech, reach levels of 15,000% annual inflation. So you understand these numbers, we’re talking about a milk that would go from costing 400 pesos to 60,000 pesos in the span of a year. Our mission is to avoid this catastrophe and solve the problem. The first thing we need to do is identify the Genesis of this problem. This is a central point that takes a little time to explain. If one says, and I have done it many times in chats over many years, if someone asked the majority of Argentines what they say is the biggest problem: debt, inflation, the dollar, or the fiscal deficit, the majority of responses would say, more than 95% of the responses would say the debt, inflation, and the dollar. Practically nobody would answer the fiscal debt. However, the Genesis of our problem has always been fiscal. What manifests as problems are in reality the consequences of how we have financed this deficit. What is the deficit? Well, simply put the deficit is when you spend more than you collect at a national level. Let me use a home example, from your homes. If a household earns 120,000 pesos, and earns 100,000 pesos, well clearly someone had to ask for 20,000 pesos. What you call being “in the red” at the national level, is called fiscal deficit. It functions almost exactly like in your houses. You all can ask for a money loan from a bank, a family member, a friend. At the national level, if the country wants to spend more than it collects, it asks for money from the market, multilateral credit organizations like the IMF, or it asks the Central Bank to print the money. It’s a subtle difference, and I say subtle because even in the latter case, it is debt. The problems stem from financing this deficit, they are the problems brought to the people. If the debt is financed excessively with debt or repetitively with debt, it begins to generate financial problems. If it’s financed with an issuance from the Central Bank, what happens is an overabundance of pesos, of a good. When there’s an overabundance of a good, the price goes down. If there’s an overabundance of oranges, the price of oranges drops. If there’s an overabundance of petroleum, the price goes down. If there’s an overabundance of pesos, the price of pesos goes down. How does this manifest?

It falls with respect to financial assets like the dollar, and it falls with respect to goods in the economy. Put differently, inflation. These are the things that people perceive, problems of inflation and debt. The origin of this problem has always been fiscal. And what is the reason for our recurring crises? It is that as a country we focus on wanting to solve the consequences, but never the problem. Politically, we say that we have always been addicted to deficit. To solve the consequences has never solved the root of the problem, and so we’ve always fallen into recurring crises and sought to blame. Typically, what have we done for the last 100 years? The problems of debt, we restructure them, we put price controls, and we blame businessmen. If there’s a rise in the dollar, we put a cap, and blame speculators. And the deficit is fine. And this is the reason that the crisis repeats and repeats. Imagine if restructuring the debt were the solution. We’ve restructured it 9 times, we should be Switzerland and yet every time we’re poor because our answer to our problems has always been to take on the consequences but never the problem. There’s always been a political attitude of always spending more than what is collected, independent of what is collected. When 100 was collected, they wanted to spend 120. When 120 is collected, they wanted to spend 140. When 140 was collected, because we keep increasing taxes, they spent 160. And we have always followed that pattern. If you want more data, of the last 123 years, Argentina had a fiscal debt in 113. Constantly, practically every year we’ve lived in deficit.. This means that we’ve always had to look at how to finance this deficit. As we see, how do we finance? With debts or with issuances. This is what is really important that you understand because in Argentina this relationship between the deficit and financing, and the great majority of citizens, is broken. For many, taking on debt is a whim of the Minister of Economy, and it shouldn’t be this way. The problem is always the fiscal deficit, spending more than what is collected. This is the reason for our problems. Thus, what we’ve come to do is the opposite of what has always been done. We come to solve the root of this problem. To not have to suffer these consequences any more, to not suffer more inflation, to not suffer more poverty. For this, it’s fundamental to solve our problem of addiction to fiscal deficit. Adn this today represents an opportunity for everyone because it’s the first time in more than 100 years where a candidate comes to government who explains this, and the people understand, and vote overwhelmingly for it. When I was a boy and for many years there were always candidates who wanted to explain this, but they never got more than 5 or 6% of votes. Today we are on the vanguard of a historic opportunity because at last a candidate reached an absolute majority and reached a point where society understood that this is the problem. Understood that there is no more money. No more money. That we can’t continue spending more than what we collect. To solve this problem, I’m going to read to you the measures that make up this urgent packet, whose end goal is to neutralize the crisis and achieve stability for economic variables.

1. We will not renew the state labor contracts which have been in effect for less than a year. A habitual practice in politics is bringing in thousands of family and friends before the change of government, to maintain their privileges.
2. Decreeing the suspension of the discretionary spending of the national government for one year. During 2023, between the presidency and the ministers, they spent $34 billion of discretionary pesos. There is no money for expenses that are not strictly necessary and much less with the money from the average taxpayers that are created only to praise the government.
3. Conforming with the law of ministries, decreed by the president, the ministries will be reduced from 18 to 9, and secretaries from 106 to 54. This will reduce administrative expenses by more than 50%, and reduce political expenses by 34%
4. We’re going to reduce discretional transfers from the national government to the provinces to a minimum. Resources that sadly in our recent history have been used as political favors. To do politics, let’s say.
5. The national government is not going to license any new public works projects, and will cancel the approved licenses for projects whose development has not started yet. As I said before, there is no money to pay for more public works, which as we all know often ends up in the pockets of politicians and businessmen. Public works has always been one of the principal points of state corruption and that ends with us. Public works in Argentina will be done by the private sector now that the state, as I said, doesn’t have money or financing to bring them to fruition.
6. We’re going to reduce energy and transport subsidies. Today the state artificially sustains low prices for energy and transports costs through subsidies. Politicians have always done this because it’s a way of tricking te people by making them believe that they’ve put money in their pocket. But as all Argentines have now realized, these subsidies aren’t free and are paid for with inflation. What you gain in the price of a ticket, you pay for in the increased prices at the supermarket. And with this inflation, it is the poor who are financing the rich. Additionally, transportation subsidies are an act of deep discrimination against the interior provinces. We are going to end this discrimination against the interior.
7. We’re going to maintain the work plans in accordance with what was established in the 2023 budget, and above all we’re going to strengthen the social policies that are received directly by those who need them (without intermediaries). This includes the universal assignment for children, and the food card.
8. We’re going to set the official exchange rate. It’s going to be valued at around 800 pesos, so that production sectors have adequate incentives to increase production. This will be accompanied by a provisional national tax increase on import and export withholdings. By doing so, we’re going to benefit exporters with a better price and we’re going to make it harder to discriminate against the agriculture sector. We’re going to eliminate all export duties, which are a perverse burden that clearly we don’t like and which hinders Argentine development.
9. We will replace the importing system with a statistical system that will not require the prior approval of licenses. This will end the discretionality, and guarantees transparency in the import approval process. Essentially, whoever wants to import something, can do so.

I want to be clear with Argentines about how the next few months will be. We’re inheriting a repressed inflation which is now being exposed and which is a result of the ultra expansive monetary policy of the last 4 years, and of price controls which almost never work. You see it in the supermarket stands, anyone who’s gone to the supermarket in the last 2 weeks will have seen how some prices have gone up almost 100%. We’re entering several months that will be worse than before, in particular in terms of inflation and I say this because, as the president said, it’s better to say an uncomfortable truth than a comfortable lie. For all of this emergency situation that we’re going to live through, the president has asked that we put a fundamental focus on the people who are likely to suffer the most. For this reason, we’re going to complement these measures with a tenth measure, of important social relevance. What we are going to do is increase the universal allocation for children and increase the food card by 50%. To conclude, let me tell you that we can be sure that this is the right path, and if we continue on the other path we’re going to end up in a situation of greater poverty, higher inflation, and more suffering. Argentina is a resource and human-rich country, and if we finally do the task that we’ve never wanted to do, we will allow ourselves to dream of returning to be the great country that 100 years ago, the world admired so much. Thank you.