Unprecedented Economic Challenges: Adjustments and Adapting to the New Reality

Strength builds as the adjustment continues, and the bet against the dollar remains strong

The new administration has introduced significant changes to the economy, with the elimination of subsidies for urban transportation in provinces being one of the most contentious aspects. This decision was met with immediate action by Minister Miley, who withdrew the Omnibus bill from Congress due to concerns about specific approval and potential cuts to various items. Despite political challenges, there is a belief that achieving a financial surplus is an absolute priority.

The market responded positively to this message, with stock prices falling and bonds decreasing but not as expected. This suggests that investors have faith in the government’s ability to achieve its objectives, even if it comes at a political cost. Inflation is expected to increase around 18% in February due to rising electricity, gas, gasoline rates, prepaid bills and school supplies.

The adjustment based on significant reductions in pensions, salaries and fixed-term deposits in pesos has entered a new stage different from what characterized the Argentine economy since 2023. This cycle is driven by the sharp drop in sales since the beginning of the year due to price stampedes after December devaluation.

Businesses are now focusing on quantities sold rather than rebranding race concerns. Sales drops of up to 50% have been reported by some businesses especially shopping malls while textile construction and medication sectors reported drops of 20-30%. Discounts of 50-70% are evident in various businesses including supermarkets for retirees representing a new stage of downward trend in quantities sold.

Economists predict that families will face strong adjustments and key question revolves around how much recession will be necessary to lower inflation due to current deregulation of prices. The Central Bank has purchased US$ 6.8 billion since devaluation which is expected to maintain fixed exchange rate policy but some market operators and analysts consider a possible exchange rate jump in April necessary.

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