After years of unending financial crises, Argentines are so sick of the political establishment that they may give an outsider a shot at righting the economy. Javier Milei is close to finding out if he can actually do this.
By Charles Newbery
In Argentina, two political groups have ruled for much of the past century, bar a smattering of military dictatorships. Their economic records have been far from brag-worthy. The latest financial crisis began in 2018 under a right-of-center coalition and worsened under a left-of-center party. Annual inflation is 124%. The benchmark interest rate is 118%. The Argentine peso has fallen by more than half against the US dollar so far this year.
Not surprisingly, the electorate is miffed, and their clamor for change could bring an outsider to power. Javier Milei, a far-right libertarian who only became a national congressman in 2021, is running first in most polls ahead of the October 22 general election after winning the largest number of votes of any candidate in the August 13 all-party primaries. The ultraliberal economist and former professional goalkeeper wants to restore the economy to the greatness of the late 1800s and early 1900s, then one of the strongest in the world.
“Milei is an expression of people’s overall exhaustion with the situation. They want a change no matter what,” says Juan Cruz Díaz, a managing director of Cefeidas Group, an international advisory firm in Buenos Aires.
Indeed, many people have sided with him against their own good, including state workers. Milei’s vows to cut subsidies and shrink the state could cost them jobs and money.
“I think his connection with people is related to his charisma and how he has managed to connect with that anger, with that tiredness that people have with the establishment,” Díaz says.
Milei is not shy about voicing his proposals. Often garbed in a leather jacket, the 52-year-old has taken oversized boxing gloves and a chainsaw to campaign rallies for his La Libertad Avanza party to stress the need to slash public spending as a first step to achieving what has long eluded the economy: sustainable growth.
Argentina has had a fiscal deficit during 112 of the past 122 years, Milei often says at rallies. Of the 22 financial crises since the start of the 20th century, a fiscal deficit was the source of 20 of them. The result has not only been a rise in public debt and defaults, but also a reliance on printing pesos in an effort to sustain public spending, he says. This is “a scam” that burdens people with high inflation and taxation, a weaker currency and below-potential economic growth and public services.
To change this, Milei wants to slash public spending to eliminate the primary fiscal deficit – now at 1.3% of GDP, excluding interest payments on debts – in his first year. He also wants to dollarize the economy, shut the central bank, privatize state companies, scrap capital controls, reduce taxes, streamline regulations, shift public works to the private sector, economize the government, widen international trade, fight drug-trafficking, reduce poverty and stamp out corruption. He wants to modernize labor laws, improve education and health services, and swap social welfare programs for work training and placement schemes.
Milei says the result of running such a tight ship will encourage fresh investment, leading to more jobs, higher salaries, and a decline in crime.
“Thirty-five years from now, we will once again be a world power,” he says.
The question, of course, is if Milei can win the election, especially against two seasoned politicians and the clout of their parties. Milei’s proposals are not much different than those of Patricia Bullrich of the right-of-center Juntos por el Cambio coalition that ruled the country from 2015 to 2019. While Bullrich, a 67-year-old former security minister, is running third in the polls behind Sergio Massa, the 51-year-old economy minister of the ruling Peronist Party, her party recently won the governor races in two Peronist stronghold provinces: Chaco and Santa Fe. It also retained Mendoza.
“She has a personal strength, a conviction, a vision. It is impossible to stop her,” says Sergio Berensztein, a political analyst. “I don’t know if she’s going to make it or not, but she’s going to work 25 hours a day and do whatever it takes.”
Milei has attacked her rather deftly, drawing on voters’ ire with the establishment. “You’re getting a used car with her,” Milei has said. “With me you’re getting a new model.”
Bullrich has countered. “We’re here to change Argentina, but we’re not adventurers,” she has said to expose Milei’s lack of experience.
Massa is another story. With the economy in the pits, Peronists suffered the worst election result ever in the primaries with 27% of the votes, down from the 48% that won them the presidency in 2019. Yet Massa still emerged as the candidate with the second most votes, better than Bullrich, who came third. With a battery of measures to assuage the impact of a 22% devaluation on inflation since then, from tax cuts to price freezes and bonuses for low-income workers, Massa has been gaining on Milei and leaving Bullrich further behind.
“There is a pragmatic sector of the electorate that is going to wonder who can force a second round to avoid a first-round victory. And that electorate is going to vote for whoever can do that, even Massa,” Berensztein says. “He is the most pragmatic option, the most centrist, within Peronism.”
Despite their efforts to gain in the polls, Milei is still ahead. This has shifted the question to whether he can actually implement his proposals as president, let alone govern. The libertarian recently lashed out at 170 economists – some of them well-known in Argentina like Javier González Fraga and Daniel Marx – for deriding his dollarization pledge, calling them “failures” and “dishonest” people who have benefited from high inflation and the tumbling peso.
His response has raised red flags. Carlos Germano, a political analyst, fears such lambasting as president would irk the opposition-controlled Congress and stymie his bold plans.
“You need a lot of expertise to build a majority. You need politicians who know parliamentary dynamics very well, what needs to be ceded,” Germano says. “To carry out the magnitude of changes that Milei is proposing, he is going to need a very active parliament with a lot of prominence. That is where I see Milei struggling a lot as president.”
The result could be similar to other fallouts in the region, such as the impeachment of Peruvian President Pedro Castillo in 2022 and the early departure of Guillermo Lasso in Ecuador this year after a little more than two years in office following two impeachment proceedings against him, Germano warns.
Berensztein says the need for consensus could force Milei to scale back his affronts. “If he wants to survive, he will definitely have to moderate himself,” he says.
Milei has shown at least some effort to do this since his success in the primaries. He’s said his dollarization plan won’t be immediate, but that it will take two years. He’s said he will keep a banking regulator as a sort-of central bank. He also has a solid team, including economist Diana Mondino and banker Guillermo Francos, a former Argentine representative to the Inter-American Development Bank. Another two are economists who worked in the national government in the 1990s, when the peso was pegged one for one with the dollar. They are former central bank governor and economy minister Roque Fernández and his deputy economy minister Carlos Rodríguez. Milei has also started going out with Fátima Flórez, a popular actress, comedian and imitator, evincing a softer side to his fieriness.
“He is showing that he is willing to make the necessary adjustments to survive in power,” Berensztein says.
“[Milei] is showing that he is willing to make the necessary adjustments to survive in power.”
– Sergio Berensztein
This strategy may not be foolproof. If Milei has to negotiate with the country’s powerful unions and social movements to curb protests on the streets, this could scupper or water down his plans, Cefeidas’ Díaz warns. “When you have to start agreeing on a lot of things, you’re going to have to make a lot of compromises,” he says.
Milei will likely have to temper his proposals, Díaz says. He adds that the candidate and his time have shown skill in understanding the economic and political situation. “I am sure that they will know how to read the situation and try to build that governability.”
The margin for radical measures will also be kept in check, he adds. Argentina has a strong judicial and legislative system that keeps the executive branch in check, he says. The Supreme Court, for example, has “openly challenged” the executive branch over the years, including blocking changes to the constitution for a president to run for three consecutive terms and holding off attacks by allegedly corrupt officials, Díaz points out.
The biggest concern is the economy in the short term. Not only is it hampered by triple-digit inflation, twin fiscal and trade deficits and low international reserves, but the public debt has grown. The country also has an exposure to lawsuits estimated by the International Monetary Fund at $25 billion, or 6% of GDP.
In the medium to long term, however, tailwinds could help put the economy on track to what Milei is promising. Initially, the next government likely will benefit from a recovery in farm production, a major source of dollar inflows on corn, soybeans and wheat, after a severe drought cost the country $20 billion in inflows, equivalent to 75% of its international reserves. At the same time, the country’s export potential is widening. The development of Vaca Muerta, one of the world’s biggest shale deposits, is increasing oil and natural gas exports, while the burgeoning mining of copper, lithium and other minerals promises to do the same.
This bodes well for diversifying the agriculture-strong exports and increasing them. The energy trade balance is expected to swing from a $4.5 billion deficit in 2022 to a $3.4 billion surplus in 2024 before gradually increasing to $25 billion in 2030, according to the Chamber of Hydrocarbons Exploration and Production.
“These are lights in a very dark tunnel,” says Esteban Fernández Medrano, an economist and political consultant at MacroVision Consulting and Global Source Partners. “You can see lights, but they are still far away, and you have to get there.”
Massa is doing the opposite to get there as economy minister, Fernández Medrano says. Massa has not only delayed spending cuts to bring down the fiscal deficit, but his raft of pre-election expenditures go against his traditionally conservative ethos to be in line with the populist faction of Peronism led by Vice President Cristina Fernández de Kirchner, who did much the same during her two terms as president.
“This puts into doubt Massa’s ability to change these measures” as president, says Fernández Medrano. “The question is whether Massa is implementing these measures to win the election even though he knows – or should know – that the measures are unsustainable. Of the three candidates, Massa is most similar to the status quo and the status quo is instability.”
And that may cost him the election.
Germano, the political analyst, says that society has expressed that it wants change, not more of the same and measures that come so late in the game to help against inflation. This is what Bullrich and Milei are running with in their campaigns. “They are saying that a change is preferable,” Germano says, “and not to continue with the same thing.” LF