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How Javier Milei calculates that inflation could reach 15,000%

2023-12-10T18:28:21.492Z

Highlights: Javier Milei: Kirchnerism "left us with hyperinflation" Milei takes as a reference what happened in the two major inflationary cycles that Argentina went through. In 1975, prices jumped from 24% to 182% in less than a year, with a severe shortage of energy and products. In 1989, towards the end of Raúl Alfonsín's term, inflation exploded when the Central Bank ran out of reserves following the failure of the Austral Plan. It was not until the implementation of the Convertibility Act that the cycle of almost two decades of high inflation was broken.


It was the number that the president released to justify the need for an adjustment. What happened in the Rodrigazo and in 1989.


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The outgoing government has left us with hyperinflation," warned the new president Javier Milei in his inaugural speech. And he explained that the legacy left by Kirchnerism "is an inflation of 15,000% per year that we are going to fight to eradicate."

To arrive at this stratospheric number, Milei takes as a reference what happened in the two major inflationary cycles that Argentina went through: the Rodrigazo of 1975 and the hyperinflation of 1989/90.

What was the Rodrigazo?

After the death of Juan Domingo Perón in 1974, his wife and new president, María Estela Martínez, implemented a strong adjustment plan under the Minister of Economy, Celestino Rodrigo.

That plan, which went down in history as the Rodrigazo, was based on a devaluation of the peso, a rise in public service rates and salary caps on collective bargaining agreements.

With this plan, prices jumped from 24% to 182% in less than a year, with a severe shortage of energy and products. The effects of the Rodrigazo continued to be felt in 1976 and deepened after the coup d'état of March 24, and thus that year closed with a jump of 444%.

The Rodrigazo began a cycle of annual inflation above 100% that would last for 17 years.

1989 hyperinflation

At the economic level, Raúl Alfonsín's government was marked by escalating prices and deficits.

In 1989, towards the end of his term, inflation exploded when the Central Bank ran out of reserves following the failure of the Austral Plan.

In May of that year, monthly inflation reached 114%, with a deficit of 14.5%. It was in this context that the presidential elections were held, which were won by Carlos Menem, and the crisis forced Alfonsín to bring forward the transfer of power. The year closed with inflation at 3079%.

The crisis persisted in Menem's first year, which ended withinflation of 2314,1990% in 1991. It was not until <> and with the implementation of the Convertibility Act that the cycle of almost two decades of high inflation was broken.

To talk about a potential inflation of 15,000%, Milei bases himself on the fact that as a result of the strong monetary issuance carried out by Kirchnerism and equivalent to 30% of GDP, today the "surplus of money" (the extra pesos that circulate in an economy that flees from the national currency) "is double what it was before the Rodrigazo, which was 6 times the rate of inflation."

With a surplus of pesos much higher than in 1975, "a similar event means multiplying (prices) by 12, and given that it has been traveling at a rate of 300% we could move to an annual inflation rate of 3,600%," Milei said.

To this, the president adds the effect of the Central Bank's "remunerated liabilities," which today are "worse than those of the Alfonsin era," "in a very short time the amount of money could quadruple and thus, inflation could be brought to 15,000% per year."

"This is the legacy they leave us. This number, which seems absurd, indicates inflation of 57% per month. Today it's between 20 and 40% for December and February." For this reason, "there is no other solution than adjustment," the president emphasized.

To add to the drama, he said that the "highest priority" is "to make every effort possible to avoid such a catastrophe that would bring poverty above 90% and indigence to 50%."

Source: clarin

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