Tax reform, inflation and exchange rate restrictions, Milei’s urgent challenges after six months of presidency

Tax reform, inflation and exchange rate restrictions, Milei’s urgent challenges after six months of presidency
Tax reform, inflation and exchange rate restrictions, Milei’s urgent challenges after six months of presidency

Approving a tax reform, eliminating the exchange rate or balancing the containment of inflation with the need to reactivate economic growth are some of the most urgent challenges facing the president of Argentina, Javier Milei, after six months at the head of the country. The Government’s ability to manage these tensions will be crucial to avoid significant disruptions to economic activity and maintain social stability while implementing the necessary structural reforms. Despite the initial economic successes of the Milei Government, which have brought monthly inflation to 4% per month in record time and have allowed it to achieve a fiscal surplus, Argentina still faces several critical challenges for the future. The elimination of the exchange rate is an “essential” and “one of the most urgent” measures since it would allow the economy to be reactivated and financial transactions to be normalized, facilitating foreign investment, according to the senior director of Public Affairs of LLYC Argentina, Juan Ignacio Di Meglio. . Although the Minister of Economy, Luis Caputo, has generated expectations of carrying it out in the short term, the analyst has commented to Europa Press that there are doubts about the possibility that it could happen before next year and “without generating a new earthquake in the economy”. LOWER INFLATION Along with this challenge is that of cutting inflation below 4% monthly, the latest figure reached last May, after leaving behind the hyperinflation scenario in which Milei began his mandate. This challenge faces complicated obstacles, such as exchange tensions, expectations of a potential new (although minor) devaluation of the peso, and the deepening of the deregulation of energy and transportation tariff prices. Furthermore, the achievements in inflationary matters contrast with the “pronounced” economic recession in which Argentina finds itself, according to the LLYC analyst. “The Government’s ability to balance containing inflation with the need to revive economic growth will be crucial to mitigate negative social impacts and maintain the political support necessary to implement additional reforms,” ​​he shared. TAX REFORM On the other hand, tax reform stands as another “important” front, according to Di Meglio, mainly with regard to the reduction of “distortive” taxes that make both consumer goods and industrial inputs more expensive and make it difficult to competitiveness of the country at the regional level. “If imports were made completely flexible today, along with a reduction in tariffs, the national industry could have to compete on unequal conditions with products that – because they do not have such a high tax burden – have lower production costs” , has explained. On the other hand, the plans to dollarize the economy do not appear on the Government’s economic agenda in the short or medium term, despite being one of the star measures during the presidential election campaign held at the end of 2023. On the other hand, Di Maglio points to a move toward the idea of ​​unrestricted currency competition, which could signal a focus on improving stability and confidence in the Argentine peso. “In the coming months, the most likely steps will include the continued management of international reserves to stabilize the exchange market and strengthen monetary policy, with the aim of creating favorable conditions for economic growth without resorting to such drastic measures as complete dollarization. “, he reflected. FOCUSED ON FOREIGN INVESTMENTS, BUT WITH OBSTACLES Another of the lines on which Milei’s economic policy has stood out in the first six months of his mandate, and on which his Government seems to continue focusing, is the attraction of foreign investment, with the that his cabinet has “a clear commitment”, according to the head of LLYC in Argentina. His latest measures have focused on deregulating the economy, reducing distorting taxes or improving the business climate and competitiveness. However, it is still “crucial” to apply others such as the elimination of the exchange rate to unlock the full potential of these initiatives, since exchange stability and freedom “is fundamental for long-term investment.” Likewise, to calm investors, Di Maglio recalled that it will be key to reach an agreement with the IMF to receive fresh funds that strengthen reserves, in addition to achieving the political sustainability of the program in the medium and long term.

 
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