Shock to Argentina: Will Milei be able to get his country out of the quagmire?

LOOK: Assumption by Javier Milei LIVE | Last minute of the acts of the new president of Argentina

The rise to power of the libertarian Javier Milei It is an immense challenge. The economist won the elections resoundingly (56% over the 44% that Peronism obtained) because Argentines knew of the need for urgent change and that it was better to take a leap of faith than to continue falling into the abyss. That is why the chainsaw speech resonated so much, despite the other ‘buts’ that surrounded his candidacy.

Milei put on the presidential sash thanks to the fact that during the campaign he said that he would close the Central Bank, that he would dollarize the economy and that he would “kick out” the political caste. He did not disguise the need for a fiscal adjustment and price honesty. But now that he is already president, the questions arise: Is it feasible to carry out everything he promised? What will be the consequences of the adjustments? Will Kirchnerism let him govern and apply the changes?

Let’s start by deflating the bubble a little. The caste that he denounced so much during the campaign is now an important part of his cabinet. Patricia Bullrich, who was her rival in the first round, is now her Minister of Security, as part of the deal that Milei has had to make with the ranks of former president Mauricio Macri, in order to gain governability.

His new Minister of Economy, who will have the immense task of redirecting public finances, is Luis Caputo, who was also Macri’s former minister and former president of the vilified Central Bank. Names closely linked to his political formation, La Libertad Avanza, were left behind, which has been left out of several important positions.

Milei has only seven senators and 39 deputies in the national Congress, a tiny amount if he wants to get his proposals approved, so he will need a very good political wrist – and caste – to be able to survive in office.

“For now, certain agreements are being reached with some governors of the provinces that will allow them to vote on laws, and will guarantee a period of governability. “Congress is a place of negotiations and alliances will be forged according to the content of each law that is to be approved,” political scientist Liliana Díez, a graduate in Political Science and Public Administration and a member of the Network of Political Scientists, told El Comercio. from Mendoza.

Dollarization on pause

One of Milei’s flagship proposals has been dollarization. With stratospheric inflation (147% was the year-on-year inflation in October), the national currency has practically no value and is also subject to multiple exchange rates that have only distorted the market.

However, disappearing the peso is not seen as a simple task, because Milei wants to aim first at cleaning up the fiscal deficit (hence the reduction of ministries from 18 to 9), through privatization of public companies, price liberalization and , above all, to the payment of the debt that the Central Bank has with private banks (the so-called leliqs). Given this, the president has already announced that there will be stagflation (stagnation of the economy plus inflation) in the coming months.

The latest report from Focus Economics projects a “deep economic contraction” with inflation of 260% for the second quarter of 2024 and that the dollar will reach around 1,500 pesos towards the end of next year (it is currently at 990 pesos).

In fact, the new president has hardly talked about dollarization in recent weeks and has focused more on the fiscal accounts and the adjustments that will come for the next two years.

“Dollarization is not something you will implement first. The sensible thing now is for Congress to pass the reforms that the majority agrees on, such as closing the fiscal gap and reducing the state apparatus. Once that is more consolidated, we could move on to the most complicated issues, such as the closure of the Central Bank and dollarization,” Marco Ortiz, professor in the Department of Economics at the Universidad del Pacífico, explains to El Comercio.

“When economies follow outdated recipes that go through price controls, they end up with enormous distortions because the State interferes in setting prices. Peru went through the same thing, and then came the famous package of [Juan Carlos] Hurtado Miller in 1990″, adds Ortiz. “The liberalization of prices is complex because one does not know where those prices are going to end up, and this whole process generates inflation, however, the Argentine productive apparatus needs to be reconstituted.”

The noise of the street

The Peruvian economist points out that privatizations and reforms are going to produce unemployment since many sectors were only kept afloat by state intervention. “Everything will depend on how quickly the measures and reforms are implemented, but some industries that were previously protected by the State are going to have to go bankrupt, and that process implies, in economic terms, a reallocation of factors. That is, many people are going to be left without work,” explains Ortiz.

Thus, one aspect that appears to be the most complicated for the government is dealing with the now Kirchnerist opposition, which has blood in its eyes after having lost the elections. And this opposition will not only be faced by Milei in Congress, but also on the street. The powerful union leaders, although historically linked to Peronism, are also in many cases political leaders of the K, and have already announced that the libertarian government will be brief because they will not hesitate to go out to “defend the workers.”

For Díez, there has been a change in Milei’s speech from the campaign to his victory in the elections. “He won by saying that he would make an adjustment, but that this adjustment was going to be paid for by the political caste and the prebendary businessmen, that is, the friends of political power. But now it turns out that the chainsaw will come from the workers’ side.”

“What he called the political caste is now having a political color, since the Milei officials are people known to Argentines because they were in the previous liberal governments – that of Menem and that of Macri – so in terms of politics There is not much hope for change,” says the Mendoza political scientist.

However, the expert points out that the new government must be given the necessary time to face the crisis and that unions should not act as political parties but rather evaluate the needs of their sectors and negotiate.

“Government communication is going to be key. Without good communication it is difficult to pass these reforms because we must explain well to the population that they are necessary for Argentina to return to the path of growth and economic well-being,” concludes Ortiz.

Javier Milei has a titanic task, not only because of the high expectations placed on him but also because of the magnitude of his promises in the midst of the very complex political-economic framework that Argentina represents. Removing one of the largest countries in South America from bankruptcy is not easy, even more so if it will have the constant judgment of Kirchnerism at the forefront, a force that has been wounded but not defeated.