Alberto Navarro [1]
Without a doubt, the libertarian Javier Milei has been making headlines as the world watches with a certain dose of curiosity and admiration what seem to be miraculous achievements of his government in the field of the economy and beyond. I will outline some of these accomplishments, but first, I will try to describe the unique profile of the new Argentine president, who came to power due to the fatigue with old politics.
Arriving at the Rivadavia Chair with a minimal team, just a handful of deputies and senators, and without governors or majors of his own, the newly elected Argentine president seems to have passed the test of whether he and his young political party, La Libertad Avanza, can become a stable phenomenon. Making a show of being detached from what he vaguely calls “la casta” (the caste -which he attributes with having led the country into its long failure), Javier Milei seems to be on track to consolidate his power base without major setbacks amid the profound decay of traditional political parties, pre-existing leaderships, and, particularly, the Kirchnerist Peronism.
Skilled and pragmatic as he has shown himself to be, Javier Milei is not unaware that thirty percent of the country still supports populist practices, either for ideological reasons or because they have benefited economically from them. And while a very good piece of news seems to be that the Peronist hordes—now lacking public funds—no longer have the tools to destabilize the public scene or block streets with their recurrent pickets, the libertarian government seems to understand what it means to still have Cristina Kirchner leading General Perón’s movement, although fractured as it is.
Another feature of the presidential personality is his propensity to champion a form of democracy of extremes, which is manifested in president Milei’s violent and vertical discourse, which includes rational opponents, prestigious journalists, and even those who helped him reach power, such as his vice president, with whom he hasn’t spoken for many months. And although the president’s tough stance is rejected by a significant percentage of the population, austerity, commitment to work, professional preparation, shown honesty, clarity of expression, firm hand against crime, and simplification of the daily lives of Argentines attributed to President Milei are more important. This is how we should understand that with his cry «Viva la Argentina, carajo» (Long live Argentina, damn), the allegory of «La Motosierra» (chainsaw) and other disruptive forms, the presidential message seems to resonate with other segments of voters. In the words of Charles Baudelaire, it seems that c’est là son charme et son secret.
It’s the economy, compañero peronista!
It seems undeniable that President Javier Milei’s economic program had a resounding success during his first year, as from the very beginning of his administration, he made significant progress in ordering and balancing public finances, reducing state spending by 30%, something unusual for Argentinians, used to continuous deficits. Among many benefits derived from this, along with the government’s commitment to addressing outstanding external debt, the country risk rate (a measure of default risk) plummeted by 40%. Everything suggests that fiscal, monetary, and trade balances will be kept and consolidated.
Fiscal adjustment and the halt to uncontrolled monetary issuance also allowed for an accelerated reduction in inflation, which had reached 220% annually in 2023. Although inflation in 2024 remained remarkably high by international standards (the year will close at 120%), the government managed to curb an inflationary spiral that would have inertially surpassed 1000% if the necessary corrections hadn’t been made. It is estimated that by 2025, inflation will not exceed 25%, with a tendency to fall to a single digit by 2027. This achievement—the government’s main political focus—is even greater when considering that the new administration had to end irrational and unsustainable subsidies on regulated utilities´ rates (water, gas, electricity, and transportation), something typical of populist governments. This price adjustment implied increases of around 200+%, which naturally affected the 2024 inflation rate.
About the battered Argentine foreign trade, after successful measures aimed at its normalization and the consequent opening of the country’s commercial activities, significant growth in imports is expected by 2025, while exports will be driven by sectors such as oil & gas.
It is also highly likely that, alongside the novel legal regime for investment promotion (“RIGI”—a formula to attract capital even with still-existing exchange and capital controls), along with the repatriation of foreign currency by Argentinians, private investment will begin to slowly recover. As for generalized FDI (beyond certain strategic sectors), it will most likely wait for the consolidation of the government and its achievements before investors opening their wallets; not to forget that the investing world has burned its fingers time and time again in Argentina in the past…
Although the corrections made at the beginning of 2024 led to a significant decline in productive activity, confidence generated by the government and expansion of credit to the private sector sparked an unexpected reversal, particularly in sectors linked to external demand, such as traditional agribusiness, oil & gas, minerals (mainly lithium, copper, and silver), and knowledge-based services. On the other hand, construction, industry, tourism, and mass consumption have been slower to rebound. All signs point to Argentina’s economy growing by 5%/GDP by 2025, something that hasn’t happened in years.
It is also true that the economic situation stays fragile and is sustained on one hand by unfriendly exchange and capital controls (“cepo”), which are nevertheless expected to be finally removed by 2025. In this regard, next year will likely see the start of a new program with the IMF, which could provide fresh funds to recapitalize the still-weak Central Bank (the Argentine Federal Reserve), assisting in the end of restrictions associated with those controls. On the other hand, growing concern exists over the strong appreciation of the Argentine currency (peso) against the U.S. dollar (was this intentionally looked for by the government to control inflation?), which reduces the competitiveness of businesses, especially the export sector. Clearly, these factors accelerate the importance of completing delayed structural reforms, which should involve deep and effective changes in labor, fiscal, and pension laws; Argentinians know that when periods of relative stability were achieved in the past, but these reforms were postponed, the result was to cause valuable opportunities to be lost.
Finally, it is striking how the government advanced in cutting red tape -bureaucratic obstacles typical of populism- which, in addition to removing centers of corruption, has contributed to a better business and investment climate, particularly as regards foreign trade.
To put it briefly
Despite the heavy economic adjustment, the growing support for President Milei from the citizenry after one year in office shows that most Argentinians desire to leave behind their failed populist experience of 80+ years which marginalized the country from the path of successful nations. Seven out of ten locals believe that inflation will continue to decrease and that the government is making all necessary changes. The economic achievements, the drastic reduction of state bureaucracy, improvements of public security, the removal of permits and state controls for almost everything, are clearly perceptible, and public opinion surveys reflect this.
Everything suggests that the government will approach the parliamentary elections of October 2025 with economic growth, increased activity and durable goods consumption, while inflation will continue to decrease. All of this will likely provide Javier Milei’s young political party with greater congress support.
It seems that it is also thanks to his peculiar personality traits and ways of acting—and not despite them—that president Milei is gaining support from many who would never have stopped voting for Peronism, let alone support conservative formulas like PRO, the party founded by former president Mauricio Macri. Although it is to the latter that we must acknowledge decisive support for the president, it now seems that Javier Milei may end up hostilely keeping his voters. The risk here is that this could backfire given Argentina’s unpleasant experience with messianic leaderships and personal powers accumulation.
Therefore, it is worth asking whether Javier Milei’s “me against the world” narrative will be enough to provide the country a long-term horizon capable of ensuring the structural reforms required by the model he is pushing. This is why it is expected (and desirable) that the government will be able to build a political coalition that defends and consolidates, as a state policy, fiscal balance, commercial openness, greater deregulation of the economy, and respect for contracts. This is without saying that Argentina will need strong institutional checks and balances that ensure, overall, that it is to abide by the rule of law.
President Milei has a blank check to prove that a market-based economic program can work in Argentina. The bet—and hope—is that this could become a change in era.
Pourvu que ça dure…
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[1] Partner at DS Navarro Castex Abogados in Buenos Aires (www.dsnavarrocastex.com). The present article is primarily intended to international clients and friends. © 2024 Alberto Navarro.