BUENOS AIRES: Argentina is lowering a key import tariff in an effort to further cool inflation as President Javier Milei weighs the trade-offs between economic targets often at odds.

Economy Minister Luis Caputo announced it would lower a levy known as the PAIS tax on imports from 17.5% to 7.5%.

The Milei administration actually increased the tax after taking office on Dec 10 in an effort to boost federal revenues and close a financial deficit, but the higher tariff has elevated prices on imports.

Milei’s top priority is to slash runaway inflation that reached 26% per month after his currency devaluation last December, but has since eased to 4% by July.

However, the Argentine president’s austerity measures to reach a financial balance, such as removing subsidies on home utilities and public transit, risk pushing prices higher.

Lowering the import tariff could help relax price pressures he marches forward with subsidy cuts in a bid to both lower inflation and close the deficit.

The libertarian also pledged during his campaign to cut taxes, making the move a symbolic gesture to voters that he made good on his word.

More broadly, lowering the PAIS tax is a small step in Milei’s efforts to normalise Argentina’s economy as the government seeks a new agreement with the International Monetary Fund to replace the current US$44bil deal.

So far, talks on a new programme haven’t moved forward in concrete terms while Milei maintains currency controls on a peso that Argentines see as overvalued.

Through July, the government has collected 4.3 trillion pesos (US$4.5bil) in revenues from the PAIS tariff, which makes up around 6% of total tax revenues, according to government figures.

The tax is applied on a range of transactions beyond imports.

Still, Milei and Argentina have a long way to go.

For example, the PAIS tax is applied at a different level when Argentines exchange pesos for dollars at banks.

That rate isn’t changing for now, nor the US$200 monthly limit that Argentines can exchange as Milei maintains currency controls.

 - Bloomberg