Impending Wildfire: The Possible Economic Consequences of Argentina’s Latest Presidential Election
Political elections have serious consequences for a country’s future, this is especially true in a region so politically volatile as South America. In 2022 and 2023, Chile and Brazil saw the election of progressive candidates, indicating regional left-reformist political change. However, Argentina elected Javier Milei to the presidency, which has set an opportunity for a hard turn to the right. This approach, though seen by supporters as a needed antidote to economic problems, could be financially and economically irreversible. Argentinian tolerance for such policies remains to be seen, but one thing is for certain: Milei’s plans for stabilization, including economic dollarization, would require a complete overhaul of current Argentine infrastructure.
Stirring up Support
The bold confidence of Milei’s campaign is what won him a majority of 56% of the popular vote. Milei presented himself as a charismatic figure, and with a unique ability to rile up young voters, succeeded in bringing nearly 70% of young people to the polls under the premise of bringing about real change in the middle of a catastrophic economic downturn. Milei’s far-right views, such as calling climate change a “socialist hoax” and supporting pro-life and pro-gun laws, weredismissed by many of his supporters as they believed that he possessed the political willpower to revolutionize the country. With the state in dire need of reform, voters were open to a new bold type of leadership which allowed Milei’sdiversionist policy proposals to gain support. As the New York Times reported, Milei's political strategies represent patterns of disruption nationally, as he promises a "sharp break” with the failed economic policies of the past.
Milei's unpredictability is unsettling as much as it is empowering for Argentinian voters. Benjamin Gedan, the head of the Wilson Center’s Argentina Project, believes that the “scale of Milei’s victory”- rather his win of the presidency- is weighed down by desperation from the voters. He additionally reflected that electing Milei to the office “is a huge gamble but not a completely irrational one”. It is a plausible assumption that the previous administration is not the answer to solving the economic downturn. During the previous administration, inflation rates rose nearly 3.3% tri-monthly, creating the “deep-rooted cause of Argentina’s economic distress and chronic inflation is persistent public overspending financed by money creation”. However, Gaden concludes that Milei’s radical push into uncharted waters could have unexpected consequences.
Overall, inflation rose on average 190% between 1944 and last year, as the government “defaulted on sovereign debt nine times”, as well as the “consolidated government increased by almost fifteen percentage points”, from 23.3 in the early 2000s to 37.8 in the last few years alone. The shortfall- an overall 4.4% GDP at the end of 2023. This widened the gap between the official exchange rate with the American dollar, resulting in higher uses of the informal ‘blue dollar’. Milei won office by putting forth resolute actions to create fiscal reform and help equalize the central bank’s balance sheet. Subsequently, political analyst Sergio Berensztein told the Financial Times that the first real test of his tenure will be if Milei creates alliances. His plans for Argentina provide a novel chance for a turnaround if Milei’s momentum gives way to real change in Argentina.
Waxing and Waning Horizons
Milei debuted his run wielding a roaring chainsaw, a symbol of “slashing” the government to pieces. With supporters nicknaming him ‘El Lion Presidente’ and opponents calling him ‘El Loco’, Argentinians on both sides saw a ferocious candidate with policies that more or less rejected normalcy. Milei's radical and aggressive style is seen by some as naïveté, as this is his first time holding public office. Yet he drew in supporters around the promise that things would not stay the same, he stated that “this model of decadence has come to an end. There is no turning back”, as Milei promised a new era that would avert away from economic decline and artifice. Despite insurmountable confidence in his stride, his plans for Argentina’s economy could send it tumbling into a period of even greater instability.
Image Description: Argentine President Javier Milei handling a chainsaw to create the vision of “disruption” to old ways.
Image Credit: (Forbes/Christopher Henman )
Milei and his team are now tasked with guiding Argentina out of an economic crisis. His proposed plan could harm economic activity and embolden a “radically free-market strain of libertarianism” based on the belief that society will benefit more from state absence. Milei, post-victory, expressed that the corrupter of states is the state itself. He found fault in his predecessors, blaming the “omnipresent” leftist government for the country’s “soaring inflation…for ruining the lives of its citizens, and for leaving the nation on the brink of the deepest crisis in our history”.
His statement into office has initialized his mission. His office has already publicized their plans in a scathing statement issued by his economy minister, Luis Caputo. He acknowledged that economic casualties would ensue, but affirms that the rebuilding of the country is dependent on abrupt motions to dismantle previous systems. Caputo claims that the primary interest of Milei’s administration is the welfare of the middle class. He has now stated that support funds would be doubled and food subsidies raised by 50 percent for poorer families. Consequently, Milei’s promise to reform public subsidies would ultimately dissolve the state’s previous approach to gradual reform.
Despite promising these subsidies to help mask his revelatory plans to devalue the Argentine peso and stop infrastructure projects, his objectives would lay off government workers, reduce energy and transportation subsidies, and halve the federal ministries, causing massive job loss and reducing employment rates which will further reduce the Argentine economic output. The mercurial plans he has set in motion are aimed to shatter the contingency of conservative economic measures and ‘shock’ the economy back into prosperity. Now the head of state, his plans to rid the Argentine peso of its monetary value and dollarize the Argentine coin could send the country into a tailspin which would hit the market hard. It ultimately promises the demise of the separatist wealth favoring the profiters.
Image Description: Data survey of how satisfied Argentinian constituents are with the current state, collected in 2020.
Image Credit: (Reuters/Latinobarómetro)
Milei’s plans to dollarize the peso would likely lead to sharp increases in prices already affected by inflation rates as high as 140%. Many economic analysts have already expressed concern about the move worsening the circumstances in Argentina, and that those with the lowest tolerance for a stagnant government– the working class and civil servants– may be those who feel its effects the most. Milei’s proclaimed administrative goal is to increase the welfare of the middle class, yet it is undermined by the repercussions his plans would incur. Economists reason that a shortage of foreign reserves would mean a poor exchange rate for Argentineans when the currency is converted, leading to a net decline in real wages.
It is likely that the peso will continue to depreciate, only worsening Argentina’s accrued $45 billion it borrowed from China and the International Monetary Fund. With Argentina’s shortage of foreign reserves due to diminished agricultural production, the country has been forced to begin repaying its debts in Chinese currency to preserve its “real dollars''. The IMF's previous role in helping developing countries embrace capitalism by distributing loaned aid ultimately unleashed a period of hyperinflation that led to greater privatization by the state and pulled the now-targeted working class under. This paradoxical result may lead to even greater maximization of IMF debt. The only real socioeconomic effect simply may lie in proving the country to be a “crucible” that determines a country’s ‘debt carrying capacity’ without crumbling its infrastructure. Moves such as these would not only create a stalemate in the Argentinian economy- it would disrupt the global market.
That’s Ere She Wrote
Milei’s plans to restore greatness to a country beset by economic arrears have the global community worried. Smoldering pursuit of emotionally minded policy is often unsuccessful, demonstrated time and time again by the rise and the fall of the greats Alexander, Peter, and Catherine. Many analysts fear the same pattern in Milei’s term. His zero-tolerance attitude against “cultural Marxism '' will heavily influence his political actions, similar to past Brazilian President Jair Bolsonaro and American President Donald Trump, both outspoken supporters of Milei. Milei seeks to return the country to its former economic glory, and ultimately promises that “Argentina will return to the place in the world which it should never have lost”. The scales may tip as the potential economic consequences could send the economy into a tailspin and could become a predictor for other global market trends following the political upheaval in Argentina.
Newly elected Argentine President Javier Milei’s- ‘EL Lion’- supporters celebrate the win in Buenos Aires, Argentina, November 19, 2023.
Image Credit: (REUTERS/Mariana Nedelcu)