After assuming the presidency of Argentina, Javier Miley – the first economist to lead the country – gave a speech on the steps of Congress in which he gave a harsh diagnosis of the economy and warned that he would make a radical cut in public spending that would worsen the economic situation. Generating “stagflation”.
He said during his first message: “There is no alternative to adaptation and no alternative to shock. Naturally, this will have a negative impact on the level of activity, employment, real wages, and the number of poor and needy people.” Chief of state.
He added: “There will be stagflation, that’s true, but it’s not something very different from what happened in the last 12 years.”
What is stagflation and why has Argentina suffered from it for so long, according to Miley?
It is a word that combines high inflation and economic recession. One of its direct results is the rise in unemployment rates.
The term is a translation of the English concept “stagflation”, which was coined in the 1960s, when this phenomenon affected the UK economy.
Experts consider it a difficult challenge to solve with the high cost of living and, at the same time, a lack of growth – with devastating effects on families.
On the other hand, policies aimed at breaking recessions tend to worsen inflation.
This is what Miley warned, telling his supporters in Plaza de Mayo that “the situation will worsen in the short term.”
However, the new president emphasized that his formula for solving the problem – deep fiscal adjustment – would be “the last bitter drink to start the process of Argentine reconstruction.”
He added, “Then we will see the fruits of our efforts, after we have laid the foundations for strong and sustainable growth over time.”
The new president also stressed that the country has in fact suffered from stagflation since 2011, and since then its per capita GDP (Gross Domestic Product, the sum of goods and services produced by a country) has fallen by 15% in a context in which we are in. The rate of inflation has accumulated. 5000%”.
“So we have been living in stagflation for more than a decade,” he explained.
During his speech, Miley recounted the economic difficulties he is receiving from the government led by Alberto Fernandez and Cristina Fernandez de Kirchner, which – in his opinion – represents “the worst legacy” in Argentine history.
He said that the biggest obstacle is the fiscal and external deficit, which is equivalent to 17% of the gross domestic product.
“Therefore, there is no practical solution that avoids attacking the fiscal deficit,” he explained, before explaining that his plan was to cut public spending by 5 percentage points and stop issuing money, “the only cause of empirically confirmed inflation.” And theoretically valid.”
Milley promised that it would be “an orderly amendment that will fall with all its force on the state and not on the private sector.”
He added, “We know that it will be difficult,” quoting a phrase from former President Julio Argentino Roca.
“Nothing great and nothing stable and permanent can be achieved in the world when it comes to the freedom of men and the gratitude of the people, if it is not at the expense of the utmost efforts and painful sacrifices.”
Miley’s critics warn that his policies will affect one of the few “positive” indicators that Argentina has: the unemployment rate, which, according to the latest data (from the second quarter of 2023), is 6.2%, one of the lowest in the country. It’s history.
Many fear that the stagflation predicted by Miley will significantly increase unemployment.
What remains fresh in the memory of Argentines is that crisis, which was the worst in the country’s history, two decades ago, when unemployment reached a record level of 24.1%.
However, supporters of the new government assert that the current employment rate hides another fact: although there are jobs, salaries are so low that a third of workers today are poor, something that has never happened before in the country.
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