Argentine President Milei warns economic shock unavoidable in maiden speech

AFP

Argentina libertarian economist Javier Milei took office on Sunday warning in his maiden speech that he had no alternative to a sharp, painful fiscal shock to fix the country's worst economic crisis in decades, with inflation heading towards 200 per cent.

"There is no alternative to a shock adjustment," he said on the steps on Congress after taking the presidential baton and sash, with crowds of supporters cheering despite Milei saying the economy would worsen in the short term. "There is no money."

Milei, 53, a former TV pundit who shot to fame with expletive-ridden tirades against rivals, China, and the pope, is taking over from Peronist leader Alberto Fernandez, whose government was dogged by failures to rein in soaring prices.

"The outgoing government has left us on track towards hyperinflation," Milei said. "We are going to do everything we can to avoid such a catastrophe."

While the speech was light on details, he said key steps would include a fiscal adjustment equivalent to 5 per cent of the country's GDP through cuts that he said would fall on "the state and not the private sector".

The wild-haired outsider marks a major gamble for Argentina: his shock therapy economic plan of sharp spending cuts has gone down well with investors and could stabilise the embattled economy, but it risks pushing more people into hardship with over two-fifths already in poverty.

However, voters - who drove Milei to victory in a November run-off against a ruling Peronist coalition candidate - have said they were willing to roll the dice on his sometimes radical ideas that include shutting the central bank and dollarizing.

BOOM AND BUST

The challenges are huge. Argentina's net foreign currency reserves are estimated at $10 billion in the red, annual inflation is 143 per cent and rising, a recession is around the corner and capital controls skew the exchange rate.

Argentina has gone through boom-bust cycles for decades with money printing to fund regular deficits stoking inflation and weakening the peso. That has worsened in recent years as reserves have dwindled with a major drought earlier this year hitting main cash crops soy and corn.

If not tamed, inflation could reach 15,000 per cent annually, Milei warned in his speech, pledging to "fight tooth and nail" to eradicate it. He also warned about a $100 billion debt "bomb".

The major grains exporter needs to revamp a creaking $44 billion loan programme with the International Monetary Fund (IMF), while Milei needs to navigate ties with important trade partners China and Brazil, whom he criticised during the campaign.

Milei takes over from unpopular outgoing center-left President Fernandez, but will need to negotiate with rivals as his libertarian coalition only has a small bloc in Congress. He has allied with the main conservative grouping.

Later in the day he took action to make good on one campaign promise, announcing in a post on X that he had signed a decree to slash the number of ministries by half, from 18 to nine.

The move evokes one of Milei's most memorable moments as a candidate, when a video went viral on social media showing him tearing down sticky notes with the names of ministries he aimed to close, angrily shouting in Spanish "afuera" - out with you.

Argentina will also remain part of the Paris Agreement on climate change, Milei's new climate diplomat told Reuters on Sunday, despite his past comments that global warming is a hoax.

The moderate tilt has buoyed markets and reassured voters.

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