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Investing.com - Argentina’s economic stabilization program under President Milei is showing signs of strain despite initial successes in reducing inflation and improving public finances, according to a new report from Capital Economics.
The peso has been allowed to decline only slowly in nominal terms while appreciating sharply in real terms, helping to anchor inflation expectations. This strategy has contributed to inflation falling to 1.6% month-over-month in June, bringing the annual rate to a multi-year low of 39.4%.
President Milei has made substantial progress in his first year and a half, implementing drastic cuts to government spending that have flipped the budget balance into surplus. The primary balance stood at 1.6% of GDP on a 12-month sum basis in May, according to Capital Economics.
Despite these achievements, Capital Economics notes that "cracks are emerging" in the pillars of Milei’s economic plan. Government revenue growth has started to slow while spending pressures on social welfare, transfers to provinces, and personnel expenses have begun to increase.
The research firm believes the peso will need to weaken significantly further than it has over the past month to restore Argentina’s competitiveness and rebuild foreign exchange reserves, though it expects no major currency moves before the mid-term elections in October.
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