The Government of Argentina, under the leadership of far-right President Javier Milei, plans to maintain a strict deficit control policy in 2025 to combat inflation and enhance macroeconomic stability. The administration aims to deepen its fight against social organizations that currently manage aid to the poorest, reduce state size, and increase spending on defense and security.
Argentines can expect a year-on-year inflation rate of 140% in December, a significant decrease from the 276% recorded in May. The rise in the Consumer Price Index (CPI) will not be matched by the exchange rate, which is projected to increase by only 58%, reaching 1,016 pesos per dollar in the state-controlled market. These figures are part of the preliminary budget report for 2025 sent to Congress by the Casa Rosada.
The report is optimistic about the strategy to control inflation and reduce fiscal redundancy, following a policy of severe cuts in state spending. Public works have been completely suspended, money transfers to provinces have been cut, nearly 30,000 public employees have been dismissed, and pension costs have been drastically reduced. Despite these measures, the Gross Domestic Product (GDP) is expected to fall by 3.5% this year, with private consumption dropping by 6.6% and investment by 17.2%.
The budget report emphasizes the government's commitment to maintaining macroeconomic stability to unlock the country's productive potential. However, the financial markets are skeptical about the sustainability of this plan, which relies heavily on controlling inflation through stringent spending cuts and limited peso issuance. The informal dollar market has reacted with a significant rise in the parallel dollar price, highlighting market devaluation expectations.
The economic turbulence has been exacerbated by the Central Bank's decision to reduce the interest rate to 40%, far below the inflation rate. This move aimed to reduce peso issuance from debt interest payments but instead led to increased demand for dollars. The government has postponed lifting currency controls to a later phase, citing insufficient international reserves to withstand potential speculative attacks.
In a bid to strengthen public finances, the government plans to launch a new bond transferring Central Bank liabilities to the Treasury, giving the Central Bank more flexibility with interest rates. The administration also aims to modernize and simplify the state, eliminate intermediaries in social assistance programs, and prioritize the business sector to foster private investment and economic growth.
- The preliminary 2025 Budget report sent to Congress highlights four key policy priorities: fiscal balance, direct social assistance, state modernization, and the enhancement of security and defense forces.
- The government forecasts a dollar exchange rate of $1,016 by December, with a year-on-year variation of 58%, and an inflation rate of 139.7% for 2024. The trade surplus is expected to reach USD 21,918 million, a significant improvement from the 2023 deficit of USD -9,215 million.
- Tax pressure is projected to decrease from 21.61% of GDP in 2024 to 21.16% in 2025, with a notable increase in VAT income by 62.5%. The economic team also anticipates a rise in income tax collection by 47% compared to the previous year.
- The government's commitment to fiscal balance is seen as essential for the country's economic stability and growth. The administration plans to continue deepening the capital market and providing better tools to the private sector while ensuring public debt sustainability.
- The report underscores the government's efforts to modernize and simplify the state, aiming for a more efficient and effective public administration. The administration also emphasizes the importance of supporting the business sector and fostering free enterprise to drive economic development.
- The government's mission to modernize the security and defense forces is seen as crucial for maintaining national stability and security in the face of economic challenges.
