Argentina's Milei revs up chainsaw and blender in fiscal deficit attack

Argentina's Milei revs up chainsaw and blender in fiscal deficit attack

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Argentina's Milei revs up chainsaw and blender in fiscal deficit attack

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BUENOS AIRES (Reuters) - Argentina's libertarian President Javier Milei is revving up his attack on the country's deep fiscal deficit, doubling down on "chainsaw" spending cuts and "blender" austerity that squeezes purchasing power - and he hopes to bring down rampant inflation.

The embattled country, facing drained central bank reserves and annual inflation nearing 300%, posted a third straight monthly fiscal surplus in March, a reflection of Milei's laser focus on cost-cutting since taking office in mid-December.

"Zero deficit isn't just a marketing slogan for this government, it is a commandment," Milei said in a speech on Monday night, touting a rare first-quarter surplus that he said was last achieved in 2008. Argentina, once a global economic power, has had 113 annual deficits in the last 123 years, he added.

"The fiscal surplus is the cornerstone from which we will build the new era of prosperity in Argentina."

Milei, an economist and political outsider who snatched a shock election win last year with regular campaign rallies wielding a chainsaw as a symbol for his planned cuts, now faces a race against time to turn the economy around.

Voters, angry after years of economic malaise under left and right governments, seem for now willing to give Milei a chance, but tensions and protests are starting to simmer, with a major anti-government march on Tuesday over education budget cuts.

Markets and investors meanwhile cannot get enough of him. Bonds and equities are flying, driven by hopes Milei will indeed stick with his fiscal tightening to improve state finances, despite push-back from opposition lawmakers and on the streets.

"Argentina's better-than-expected budget figures at the start of the year are undoubtedly good news and show that fiscal adjustment is occurring more quickly than we'd expected," consulting firm Capital Economics said in a note.

It cited government spending that had in some areas been "cut to the bone" and argued high inflation was also helping trim government spending in real terms - an effect often known as "licuadora" in Argentina, the Spanish word for blender.

A recent tongue-in-cheek advertising campaign for a chainsaw and blender combo caught fire on social media in Argentina, with Milei and his advisers posting supportive images of the deal.

"That said, many of the factors that have helped to flip the primary balance back into surplus are transitory and will fade over the coming months," Capital Economics added.

MILEI: MIRACLE OR MIRAGE?

Markets nonetheless have celebrated. Bonds have risen nearly 60 cents on the dollar from lows near 20 cents in the last year, while the country risk index is at its lowest since 2020. The feeble peso has gained some strength and reserves recovered.

Meanwhile, however, economic activity, consumption, and manufacturing have tanked, while poverty levels are rising and real wages falling, risking a flare-up of social tensions despite Milei's support levels remaining relatively high.

The International Monetary Fund (IMF), which has a major $44 billion loan program with Argentina, has cheered Milei's success but cautioned economic imbalances remain and the government will need to protect the country's most vulnerable.

"For some Milei is a miracle, for others it's just a mirage," said an analyst at a foreign private bank in Buenos Aires asking not to be named.

"The truth is that the progress of macroeconomics is starting to give results, but it will be urgent for this to spill over into microeconomics because social tensions are just around the corner."