Making Sense of Milei

Javier Milei is Argentina’s latest president. He’s become fairly popular recently for actually being elected, a rare feat as far as libertarians go. In a country with a broad history of tenuous populist promises, Milei’s rants might just seem like more of the same. In some cases, yes - the humdrum behind abolishing the Central Bank of Argentina is probably all for show; but in other areas, Milei’s proposals echo sentiments that Argentina has been historically mismanaged. Somehow, campaigning on an agenda of austerity and impending hardships became politically viable. So - how did we get here?

First, Peronism. It is the all-encompassing political paradigm in Argentina. Beginning with Juan Perón and his Justicialist party in the mid-1940s, it was an ostensibly left-wing movement standing for social justice, labour rights, Catholicism and state intervention. Importantly, Peronism has long outlived Perón. His third wife, Isabel Perón, succeeded him but was ousted by military coup in 1976. After 7 years of military dictatorship, Argentina held elections once more - Peronists had won 6 out of 9 elections until 2023.

Peronism, for all its talk of social justice, was - and is - more of a mixed bag. Juan Perón himself was effectively authoritarian, undermining important freedoms, such as the freedom of the press or freedom of expression, and while modern Peronists have largely eschewed his illiberal tactics, economic policy remains essentially unchanged. Unsustainable, untargeted welfare spending has been gnawing away at the fiscal state. For example, energy subsidies alone cost Argentina $12bn last year, disproportionately helping high earners more than those in need. To fund this deficit, not only did the Central Bank of Argentina print more pesos to make up the difference - pushing up inflation - but Peronist Argentine governments also began levying taxes on the country’s exports, starting in 2001 and increasing them in 2008, 2020 and 2022. This strangled both exports and domestic food supply by incentivising farmers to hold onto their stocks. By 2015, the country’s once burgeoning export market had crumbled, not helped by the severe protectionist policies which deteriorated relations with important trading partners like Brazil and Spain.

With inflation mounting, exports falling and the economy shrinking, it was only natural that welfare payments would increase, spurring on more printing, more inflation and higher export taxes. After years of this cycle, Argentina is crumbling. In 2023, inflation averaged 133.5%. Argentina owes 80% of its GDP as debt, with 53% of GDP being debt owed in foreign currency, its largest single creditor being the IMF. Interestingly, the main criticism of the IMF has been its leniency with Argentina and its continued financial support despite the consistent implementation of dubious policies. Argentina’s history of borrowing money goes hand in hand with its propensity to print: both were seen as viable methods to fund extravagant spending. Unfortunately, they weren’t: Argentina’s foreign currency reserves stand at negative US$5bn and it has defaulted on external debt three separate times since 2001, the latest being in 2020.

Argentineans agreed that serious change was needed. Tough political and economic decisions, like cutting unviable welfare spending or opening the economy up to trade, could no longer be put on hold to preserve political popularity. To this end, Milei bit the bullet, hard. In the run up to the election, Javier unloaded a slew of deregulatory and austere promises: spending would be cut; public companies would be privatised; trade would be liberalised; and, perhaps the most important of all, Argentina would dollarise. Milei swore off gradualism, seeking to implement radical change immediately, known as economic ‘shock therapy’.

So far, I am cautiously optimistic. On the 12th of December last year, Luis Caputo (Milei’s Minister of Economy) reduced overall spending by cutting energy and transport subsidies, and he also abolished many technical barriers to trade. For many economists, it was a breath of fresh air. For more socially conscious individuals, Caputo doubling the child benefit and increasing the government’s food card allowance by 50% should be equally lauded. Eight days later Milei would declare, by emergency decree, the “Foundations for the Reconstruction of the Argentine economy”. The declaration, while highly controversial, undoubtedly pushed the country in the right direction. Rent controls - something which I have long been against - were abolished, and export limits were scrapped. Access to healthcare has been facilitated since formal sector workers are no longer forced into health plans by their union, instead having free choice.

However, the future is still murky: Milei’s radical tendencies could make the worst of a bad situation. In particular, the president’s peculiarity towards dollarisation casts doubt on potential Argentine recovery. Milei’s rationale is that by destroying the central bank, the government could never again print money to resolve fiscal deficits. Unfortunately, it seems like too simplistic a solution to a messy situation. While dollarisation does act as a strong brake on inflation, losing control over monetary policy tends to hamper growth, such as in single-currency unions like the Eurozone. To make matters worse, consider the fact that the USA’s Federal Reserve would never, and should never, implement monetary policy with Argentina in mind - what is good for the bald eagle may not always be good for the gander.

Overall, all hope is not yet lost and I don’t see the more radical parts of Milei’s campaign, like dollarisation or legal organ trading, posing so much of a problem - it’s one of the rare cases where a politician stepping back from unrealistic campaign slogans does more good than bad. And yes - he is moderating himself. While he is the president, Milei’s party controls only 15.5% of Argentina’s lower house and just under 10% of the Senate. In fewer words: compromise is a must. Milei has already started distancing himself from dollarisation, and made serious concessions in the recent Omnibus bill he’s trying to push through Congress. The best, or worst, is certainly yet to come, but for the Argentine people’s sake, I hope they continue in their search for pragmatic solutions to their troubles, rather than heed the ideological descendants of a populist authoritarian who has long outlived his welcome.

All articles and opinions posted give the views of the author(s) and do not necessarily reflect the views of the Leeds Think Tank, the Leeds University Union, or the University of Leeds.