The country’s economic crisis is likely to take another lurch down even before the president-elect takes office.
Javier Milei, the highly eccentric, zanily coiffed, and self-styled anarcho-capitalist (with a varied résumé of a type sadly missing in the U.S. political class: economist, legislator, TV personality, tantric sex coach, and much more), won Argentina’s presidential election after all. He’ll take office in early December.
Following Milei’s unexpected success in the presidential primaries in August, he came in second in the subsequent round of voting last month, trailing behind Sergio Massa, the current minister of the economy for the governing Peronists, by quite some margin, although eliminating the candidate of the center-right. However, on Sunday, Milei saw off Massa, winning by a 56–44 percent margin, a victory made all the more impressive by the strength of the Peronists’ electoral machine, which had been in evidence in the previous round.
Neither Argentina’s political class nor its voters have been known for their fondness for free-market economics. This makes it all the more likely that Milei’s victory was as much a vote against Argentina’s latest economic crisis as one for, uh, anarcho-capitalism. Nevertheless, the country’s economic crisis is the product of more than 70 years (with the occasional interruption) of economic nationalism, characterized, as economic nationalism tends to be, by industrial policy, high tariffs, capital controls, rent-seeking, and all the rest. Reflecting the corporatist strains that ran through Peronist ideology in its original form, labor unions were and are another major element in the Peronist system. The result (which some of America’s “national conservatives” might want to ponder) has been a miserable failure. On a per capita basis, Argentina was one of the richest countries in the world at the beginning of the 20th century. Let’s just say that it has fallen a long, long way down the league table since then.
Inflation now stands at over 140 percent, around 40 percent of Argentines are in poverty, the country’s foreign-exchange reserves are (on a net basis) probably negative (a drought hitting soy-product exports has made a bad situation worse), and the “blue” (black market) rate for the peso is around 900 to the dollar. When I wrote about the peso at the end of August, the blue dollar cost 728 pesos, up from 292 at the end of August 2022. Best guess is that the country is tumbling into recession and on the edge of debt default (which would be its tenth default since winning independence in 1816): Its bonds now trade at between 20 and 30 cents on the dollar. Interestingly, it paid part of a recent payment to the IMF in yuan, courtesy of a swap line it had established with China, which was in turn a reflection of China’s growing economic presence in resource-rich Argentina.
Beijing will not be pleased by Milei’s victory: the president-elect is no fan of the Chinese regime and wants (he says) to cut Argentina’s trade and economic links with Beijing. It is more likely that, with the economy in such dire straits, he will merely scale those connections back. Still, that’s a start. On the other hand, Milei will try to establish deeper ties with the U.S. He backs Ukraine’s fight for freedom from Russia, and, in marked contrast to long Peronist tradition, is a strong supporter of Israel.
So far as economic policy is concerned, Milei wants to scale back the size of government, reduce state spending, boost free markets, and, most famously, “dollarize” the economy, by (ultimately) junking the peso. We’ve written about some of these ambitions here and here. He will, however, be constrained by the electoral arithmetic in the legislature and pushback from the unions.
Richard Lapper, writing in the Daily Telegraph:
Milei’s party has only 35 of the 257 seats in the lower house, and 7 of the 72 senate benches, leaving him dependent on more conservative centre-right parties.
Yet even a light version of “Mileionomics” would be likely to lead to social turmoil. Drastic spending cuts are certain to increase poverty and joblessness. Trade unions, which retain close links to the defeated Peronist movement, are sure to be opposed. Traditionally they have been quick to resort to strikes and street blockades to get their way.
Milei is, somewhat unusually for an Argentine, an admirer of Mrs. Thatcher:
“There have been great leaders in the history of humanity, Mrs Thatcher was one of them,” said Milei, adding that Thatcher irritated Massa because he had leftist sympathies. “Thatcher had a significant role in the fall of the Berlin Wall and it seems that its fall and the crushing of the left bothers you. That’s your problem.”
However, when Mrs. Thatcher began work on repairing the British economy, she had a parliamentary majority (albeit one with more than a few waverers within it) and an economy that, however much of a shambles it was in, was far stronger than Argentina’s today.
Milei is in for some heavy sledding, and, making matters worse, the country’s economic crisis is likely to take another lurch down even before he takes office. There is no reason to expect that the current, now lame-duck government will do anything to help out.