2023-12-09 13:00:28
Javier Milei is pledging rapid reforms to halt Argentina’s decline as he takes the reins of a country in a deep economic crisis three weeks following winning the presidency with an insurgent anti-establishment campaign.
Argentina’s markets have rallied since the election in response to a pragmatic shift from Milei, a first-term congressman who only founded his La Libertad Avanza movement (LLA) in 2021 and championed radical free- market ideas throughout his campaign.
The president-elect, who takes office on Sunday, has forged an alliance with the mainstream centre-right and largely sidelined a controversial campaign pledge to replace the peso with the US dollar. In his first months he will probably devalue the currency, merge disparate government ministries and tackle the chronic fiscal deficit at the root of Argentina’s problems.
But Milei faces enormous obstacles and will have a limited window in which to capitalise on his convincing 56 per cent vote share, with social discontent looming. He will be the country’s weakest president in decades in terms of congressional support, with his party holding just 39 of 257 seats in the lower house and seven of 72 in the senate.
Juan Negri, a politics professor at Buenos Aires’ Torcuato Di Tella University, said the fate of the reforms in congress and on the streets remained uncertain.
“[He] takes office at a very delicate moment for the economy and with a population that is demanding great change but has historically been very sensitive to austerity,” he said. “Milei is at the centre of a labyrinth and it will be very hard to find his way out.”
Argentina’s well-organised unions and social movements, many of whom are allies of the left-leaning outgoing Peronist government, have already pledged to oppose some of Milei’s reforms.
“We’ll [show] unity in the streets when they start to mess with not only the rights of organised workers, but all the advances achieved,” the influential truck driver union leader Pablo Moyano said this week.
Argentina’s economy is in its most fragile state for two decades, with annual inflation running above 140 per cent. The central bank has exhausted its foreign exchange reserves, leaving businesses unable to buy the dollars to settle some $60bn worth of debt with foreign suppliers, and the government is at risk of going into arrears on its $43bn programme with the IMF, which Milei will need to renegotiate.
Interest payments are spiralling on a pile of more than $20bn in short-term liabilities issued by the central bank to local financial institutions to mop up an excess of pesos in circulation.
Seeking to lower expectations of a quick improvement, the president-elect has warned of a period of “stagflation” as his “fiscal reordering” hits economic activity and Argentina feels the impact of expansive money-printing by the Peronists.
Economists say Milei is all but certain to quickly devalue the peso. The government-set official exchange rate values the Argentine currency at just over 400 pesos to the dollar, even as black market traders charge almost 1,000 pesos per greenback. Milei’s interior minister, Guillermo Francos, last week said 650 pesos to the dollar would be a “reasonable” rate.
Milei plans to send a wide-ranging package of reforms to congress in the coming weeks, starting on Monday, with local media reporting it would include spending cuts and a plan to reorganise the state, reducing the number of ministries from 19 to single figures, and proposals to privatise some state companies.
Martín Rapetti, executive director of economic think-tank Equilibra, said: “They need to quickly give markets a sign that at least some of what they have promised on the fiscal side will be fulfilled.”
IMF spokesperson Julie Kozack said this week that the fund wanted a “strong, credible and politically backed” stabilisation plan in Argentina.
To pass reforms Milei will rely partly on support from JxC, the centre-right coalition co-founded by former President Mauricio Macri, with whom the libertarian has sealed an alliance through ministerial appointments. In congress JxC offers Milei up to 64 representatives in the lower house and 23 senators who are open to collaboration, according to analysis by La Nación newspaper.
Luis Caputo, a former Wall Street trader and Macri’s finance minister from 2017-2018, will be Milei’s economy minister, while the central bank will be led by Santiago Bausili, a friend and colleague of Caputo at his consultancy. Neither are champions of dollarisation.
Yet Milei remains far short of the 129 votes needed for a majority in the lower house and the 36 required in the senate, and analysts said he would need to negotiate his way law by law.
Francos, a veteran politician who joined LLA earlier this year, has led efforts to win over centrist parties and the more pragmatic wing of Argentina’s Peronist movement, which opposes its leftist icon, outgoing Vice-President Cristina Fernández de Kirchner. Milei has appointed a moderate Peronist to lead social security agency Anses.
His strategic appointments came at the expense of his own party’s inner circle, but his team will include several LLA figures with no government experience. Sandra Pettovello, a consultant and psychologist, takes over a “human capital” super-ministry that will absorb the departments of work, education and social development.
His chosen foreign secretary, Diana Mondino, an economist and university professor, echoed the president-elect’s new-found pragmatism in a November visit to Brazil. Milei called its President Luiz Inácio Lula da Silva “corrupt” and a “communist” during his campaign. Lula declined an invitation to Milei’s inauguration.
Milei’s first weeks in office are likely to be frenetic, said Negri.
“He’s relying on public support for political capital, and that might evaporate very fast if and when things get tough,” he said. “He badly needs to make the most of his honeymoon period.”
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