Argentina's Milei backtracks on peso switch

DW (English)

Javier Milei has backed down on his election promise to replace the peso with the dollar to revive the flagging economy. Despite the U-turn and runaway inflation, opinion polls show strong public support for Argentina's new president.

Transcript

00:00 This market was founded in Buenos Aires in 1889,

00:04 a year before one of the many economic crises in Argentina's history.

00:08 Now, at the start of Javier Millet's term in office,

00:12 prices are rising sharply, by at least 70 percent

00:16 in the case of beef. Millet centered his election campaign on a promise to

00:21 replace the peso with the dollar.

00:23 But his first move has been to devalue the peso

00:27 by half. The majority of the population still support him.

00:31 "This is a burden for us,

00:35 but get rid of the government? The important thing is we've kicked out the rats

00:39 that were there before."

00:40 "I very much agree with what he is doing now.

00:47 I don't agree with him changing the currency, but unfortunately our peso was

00:51 devalued many years ago,

00:53 so this isn't just a recent thing."

00:57 "Everything costs twice as much, but it was to be expected, so

01:01 we'll just have to deal with it. The results will be seen in the long term."

01:06 "I don't know when dollarization will be possible.

01:10 I don't see it in the immediate future, but it's what the people chose."

01:14 Luis Afrinchino gives management advice to small and medium-sized enterprises.

01:23 These days he's been consulted to define prices

01:26 in the face of rising costs. He doesn't plan to cut basic expenses, but will stop

01:32 going to restaurants or cinemas.

01:33 He voted for Malay, not in the first round, but in the second.

01:37 "I think there's a need for order and I voted for him from that point of view.

01:44 I think that society as a whole should give him a grace period,

01:48 which would be, I don't know, six or eight months. We're waiting for a client to fail or for a fee reduction,

01:54 but we also believe that this is a time of great uncertainty

01:57 where professional input is going to add value."

02:00 Economist Matias Sert explains why Malay ruled out adopting dollarization

02:06 at the beginning of his government

02:08 and adopted an orthodox mix of devaluation and fiscal adjustment

02:12 to straighten out the battered economy he inherited from the previous government.

02:16 "It was a very effective campaign promise because it was very disruptive

02:21 and allowed him to fill the political agenda,

02:23 but practically speaking it was technically impossible to adopt the dollar

02:27 immediately

02:28 because the central bank doesn't have the reserves."

02:31 In order to boost reserves by exporting more and importing less,

02:35 the peso was devalued, but the government clarified that the objective

02:39 is still dollarization and Sert warns that this complicates the plans.

02:43 "If they keep insisting that the end goal is to change the currency,

02:48 the time will never come when people will really demand pesos."

02:51 Unlike in open economies with low inflation,

02:55 in Argentina devaluations bring sharper price increases

02:59 and an initial drop in activity. If all goes well, it's thought recovery will

03:04 take half a year.

03:05 year.

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