Argentina’s Milei warns of ‘stagflation’ as he names economy minister

Argentina’s libertarian president-elect Javier Milei, who on the campaign trail vowed to upend the establishment, on Wednesday tapped a former central bank governor and finance minister to the economic portfolio in his cabinet.

Milei said he had chosen Luis Caputo, an economist and finance minister under market-friendly ex-president Mauricio Macri, for the job in a country beset by skyrocketing inflation and poverty of 40 percent.

Milei, a 53-year-old political outsider, stormed to victory in elections 10 days ago pledging to ditch the peso for the US dollar and “dynamite” the central bank as ways of dealing with Argentina’s long-running economic malaise.

On Wednesday, he warned of months of “stagflation” — inflation coupled with economic stagnation — ahead.

Watch | What’s next for Argentina’s economy?

Inflation — at 143 percent year-on-year — “will remain high” due to the outgoing government’s monetary policy, Milei cautioned.

“There is going to be stagflation, because when you do a fiscal reordering, it will have a negative impact on economic activity,” he added.

For 2023, the International Monetary Fund (IMF) has projected a contraction of 2.5 percent in Argentine GDP.

Since beating outgoing Economy Minister Sergio Massa in a November 19 runoff vote, Milei has sought to temper hopes for a rapid economic turnaround, saying it could take “18 to 24 months” to bring inflation under control.

He has also said that “dollarization” of the economy — a key campaign promise — might have to wait about a year.
The top priority is cutting the budget deficit.

Milei announced Caputo’s nomination on his return from a visit to the United States, meeting top aides to President Joe Biden.

Caputo, who accompanied Milei as a financial adviser, had also taken part in a technical meeting with officials of the International Monetary Fund, to which Argentina owes repayment on a $44 billion loan taken out by Macri in 2018.

Milei told La Red radio that Caputo had been well received by the IMF delegation, which he said “perfectly understand the challenges” the South American country faced.

Before joining Macri’s government, Caputo, 58, had previously worked for American bank JP Morgan in bonds and stocks trading. 

Milei recently asserted that “there is no better financial expert in Argentina than Luis Caputo.”

As finance minister, Caputo was credited in 2017 with the successful issuing of a 100-year sovereign bond that was lapped up by investors, raising much-needed capital despite the country’s poor economic standing at the time.

An economist himself, Milei describes himself as anti-establishment and holds conservative stances on social issues such as abortion and climate change. 

On the campaign trail, he waved around a live chainsaw to illustrate the cuts he wants to make to state spending and often dressed up as his superhero alter-ego “Captain Ancap” — short for anarcho-capitalist.

He received Macri’s backing for the presidency.