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How Javier Milei is turning Argentina's economy around
Ian Bremmer's Quick Take: Hi, everybody. Ian Bremmer here and a Quick Take to kick off your week. And today, I want to take us to Argentina, where newly elected President Javier Milei deserves a round of applause, at least for where we see the country so far in his administration.
We've had a first budget surplus that Argentina has enjoyed in over a decade. And monthly inflation, which has been significant highs and impossible for the people, is actually slowing down. Now, that's a really big deal. After several administrations in Argentina doing their damnedest to destroy the economy, Milei is turning the place around. He's succeeding. And by the way, this was not what I expected when the elections were happening. When he was first elected, I wrote, “expect more economic collapse imminently. ” And clearly that didn't happen. And that's a great thing. for the Argentinean people. I'm happy to be wrong about this. And by the way, I'll be very happy if I could be wrong about Ukraine getting partition, that seems like a tougher one. But nonetheless, what happened and why has he been more successful than I expected? It's worth thinking about.
Well, first of all, what the challenges were. Milei’s party has a thin minority in Congress, so he's had to use presidential decrees to push most of his ambitious economic reforms. He's the weakest president in institutional terms that Argentina has had in modern times. So he's swimming against a really strong current. And the Peronists who control a lot of power in Congress and among mayors and governors and the trade unions. I mean, these are people that would love to see Milei fail. So, first of all, my expectation was that no matter how smart well-thought through his economic policies were likely to be, the desire of the kleptocracy that's been in place for such a long time in having this guy fail and come back to power themselves, would be so strong that he wouldn't have any chance to get anything through.
In other words, they wouldn't be willing to compromise. Now they have shown themselves willing to compromise. And some of this is if you leave Cristina Kirchner out, who's really kind of volatile and horrible, polemic as a governor and corrupt as someone running the country, a lot of the peronists are really happy to see essential things happen in the economy that they don't have to take responsibility for. In other words, it's on Milei. It's not on them. And so there's a willingness to provide some compromise, even though that's going to mean smaller budgets, more austerity, that they're not going to get as much. They're willing to give him a little more rope than I expected before he became president. That's interesting. That's absolutely worth paying attention to. The difference between the Kirchner's and her inner circle and the Peronists that have been running the country to ruin for a long time.
Second point though, is that Milei himself has been much more of a thoughtful leader in terms of economic policy and his willingness to back down from eccentric and overdone claims than I had expected when he first became president. Now look, unlike Argentina's last several administrations where they were pretty well known to anyone that covered the country and I've traveled there and got to know the cabinets and met with the presidents and all of that. In this case, you had a complete outsider. I had no idea who was around Milei and a lot of what was being said about him was a little bit out there, like for not just the fact that he wanted to go after the leftist libtards, but I mean, the fact that he had cloned dogs and that, you know, claimed to actually, talk with one of them that died from beyond the grave. And, I mean, a lot of the comments that he made were beyond eccentric.
Having said that, there was also a lot of media coverage of Milei that really didn't like him because he was a right-wing libertarian, and also because he aligned himself with Trump and said nice things with the former president. And then of course, goes and does immediate interview with Tucker Carlson, who was a spreader of disinformation and a bomb thrower, not exactly someone you can trust, but that, of course, meant that ideologically, a lot of people that were covering him were not covering him honestly. They were knee jerk reacting to, this guy is going to be an idiot. And frankly, you know, absent an understanding of the people around him, I was more willing to go along with that.
Well, it became fairly clear once he was in as president that his initial appointments were better than that. I sat down with his foreign minister to dinner back in January and was pretty impressed with her both individually, as a very competent, engaging and smart person on policy, but also in the way that she described, which struck me as very honest, her relationship and conversations with the president.
I heard from many people from different countries, developed countries around the IMF that his appointment of the former president Macri's economic advisor to the IMF board was extremely well received. This was someone that was really well respected across the markets and meant that the IMF negotiations were likely to go quite well, and that the meetings that Milei had with Georgieva, the managing director of the IMF, were very strong.
They were very engaged and he was willing to listen on issues of what the Argentinian government needed to do economically, which has led to a very constructive bilateral relationship between them, utterly essential given what Argentina's economic situation looks like right now. So all of that has been very positive. Now, having said that, there's no question that this cost of writing the Argentinian economy, has meant a fall in real incomes, leading to a slowdown in consumption and economic growth and a downturn in living standards and an increase in poverty.
That is happening. It's going to get worse. And government approval for now, given everything I've been saying, is actually surprisingly sticky and strong, especially if we look at Argentina standards historically. Will he be able to continue this? There's no question, it is a very high bar, and that high bar is not only because that Peronist opposition is still there, and they don't want him to be seen as a historic success, but also because economically, this would be hard for just about anybody.
But there's no question that for his first several months in government, this guy deserves respect for what he's been able to actually accomplish. And a final point is, you know, I don't think we should have such a problem with being wrong. And you only have a real problem with being wrong if you are so ideologically attached to what you were saying to begin with. And if it's just a question of analysis and you made a mistake in your analysis, you go back, you get the analysis right and you change your mind, and that's fine. Also, sometimes the world changes and so you change your mind.
But, you know, if the fact is that the analysis is wrong and it's not like I have a problem with Milei doing well, I would love him to do well. I would love the Argentinean people to succeed, and to get out of the corruption and the devastatingly poor economic policies that they've experienced for decades now. This is a country, anyone that spends time there knows incredible education, very, very beautiful and fertile land and a place that you just want to spend time. And they have been run into the ground by poor governments, a series of poor governments. And if Milei is the guy that turns that around, he has nothing but support from me.
That's all for me. And I'll talk to you all real soon.
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Argentine President-elect Javier Milei
Is Milei moderating? Argentina’s president-elect takes power
After running a scorching campaign that promised to turn Argentina into a Utopia of free-market capitalism by any means necessary, President-elect Javier Milei is cooling things down a bit ahead of his inauguration on Sunday.
Milei won last month’s election in a landslide by blasting the economic policies of the outgoing Peronist government, promising to slash government spending, cut taxes, eliminate most ministries, close the central bank, and dollarize Argentina’s economy.
But now he is aligning himself closer to the Peronist party he derided and hiring mainstream figures to help him shape his economic agenda, conceding that he can’t topple the central bank overnight. He is also moderating his promises to cut social spending, as powerful labor unions and working class movements line up against him.
Milei comes to power during the worst economic crisis in decades, with two out of five Argentines living in poverty and inflation up 147% since last year. But he’ll also be governing without a majority in Congress. His last-minute moves to moderate are at least partly due to the realization that he’ll have to win friends and influence people if he wants to make progress on his domestic policy promises.
Candidate Javier Milei greets his supporters as he arrives at the school where he votes, in Buenos Aires, Argentina, on Nov. 19, 2023.
Milei’s victory plunges Argentina into uncharted waters
Far-right libertarian Javier Milei is set to become president of Argentina after defeating Economy Minister Sergio Massa in Sunday’s runoff election. With over 90% of the ballots counted, Milei leads the vote count 56% to 44%, and Massa has conceded defeat.
Milei’s campaign promises: A self-described anarcho-capitalist, Milei has pledged to cut public spending by 15%, abolish Argentina’s central bank, ditch the peso, and make the US dollar the country’s legal currency.
Despite Milei’s extreme campaign pledges, it seems that voters just couldn’t stomach elevating an economy minister who had delivered inflation north of 140% to the presidency. Two in five Argentines are living in poverty on Massa’s watch.
Milei's party, however, only controls about a small fractions of seats in each house of Congress, which will make passing legislation a major challenge.
What's more, dollarizing the economy is no panacea. True, countries like Zimbabwe and Ecuador have used the tactic to remove the government’s ability to print money (and thereby drive inflation) — but Argentina ain’t Zimbabwe. Unilaterally handing the US Federal Reserve control of monetary policy in a $622 billion economy is absolutely unprecedented.
The dollarization of an economy this large and signaled this far in advance may actually drive up inflation. To fully dollarize, Milei would need to buy enough dollars to convert all the pesos in circulation and convert all contracts and assets into dollars. Buenos Aires is already having a hard time buying dollars because the peso is so weak, and the lack of foreign reserves to back its nominal value means a significant devaluation of the currency is expected before Milei takes office on Dec. 10.
Because the peso will soon be even weaker, Milei will probably need to print more pesos just to begin the dollarization process. But in doing so, he’s likely to trigger another round of hyperinflation, which could quickly eat away at his political popularity.
Graph of Argentina's inflation since 2018
The Graphic Truth: Argentina's Inflation Problem
Argentina is facing some of the world’s highest inflation, with rates this year climbing back into the triple digits for the first time in three decades in February. Some economists forecast that South America’s second-largest economy could break the 200% inflation mark before the year is out, exacerbating the ongoing economic crisis that has left four out of 10 people in poverty as prices rise faster than wages.
How did things get so bad?
- Argentina never fully recovered from an economic crisis in 2018 when its peso lost nearly half of its value against the dollar. The IMF responded by loaning Argentina a record $57 billion. The loan failed to stabilize the economy, and the country later defaulted on it and on its own government loans. Annual inflation has stayed above 50% ever since.
- During the pandemic, the government printed money and implemented currency controls and price freezes, laying the groundwork for inflation to soar.
- This year, the economy has been crippled by low GDP growth, high prices, reduced consumer spending, and droughts destroying key agricultural exports.
This is having serious political consequences. Rising prices have spurred a cost-of-living crisis, looting, and rampant poverty. The crisis is boosting support for Javier Milei, a radical libertarian who won the primary election earlier this month on promises to dollarize the economy. His unexpected success further destabilized the economy, adding to inflation. But rising inflation is good news for Milei, who can pin the economy’s problems on the establishment parties he hopes to beat in round one of Argentina’s presidential election in October.
Argentine congressman and presidential pre-candidate, Javier Milei
Argentina’s economy teeters on verge of collapse
Argentina’s economy is on thin ice, especially since the radical libertarian candidate Javier Milei unexpectedly emerged as the front-runner in the presidential primary this week.
Milei is promising to dollarize the economy and abolish the central bank if elected this autumn. His primary success sent shockwaves through the markets, forcing Economic Minister Sergio Massa – who is also running for the presidency – to devalue the peso’s exchange rate, adding to already soaring inflation, and forcing him to raise interest rates from 97% to 118%.
Wait, why did a primary destabilize the economy? Argentina has been experiencing hyperinflation – with prices rising an average of 6% a month – so the risk of any political turmoil setting off economic chaos was high.
Milei's primary success sparked fears of impending dollarization, spurring Argentines without access to dollars to rush to buy them in the streets, further devaluing the peso.
The official peso-dollar exchange rate now stands at 350 pesos per dollar and 665 per dollar in the “parallel” street market, a nearly 10% drop in value from before the primary.
Massa has promised no more devaluations before the election. But that could lead to government bankruptcy, especially if banks decide to collect on the government's mounting debt or the IMF withholds funds in response.
Some analysts view the strong support for Milei over the establishment party as evidence that the country is ready for deep and painful free-market reforms. But according to Luciano Sigalov, a Latin America researcher at Eurasia Group, Milei 's popularity is bad for the economy, and a bad economy is great for Milei.
“The likely prospect of a Milei victory and the risks from his radical policy program will generate more pressures on inflation and exchange rates. The worsening economic conditions will benefit Milei as he blames [rival] politicians for the spiraling crisis,” says Sigalov.
In other words, Milei has every reason to feed political and economic instability ahead of Argentina’s first-round presidential election in October.
Argentine presidential candidate Javier Milei gives a speech in Buenos Aires on Aug. 7, 2023.
Populism rules the day in Argentina
Far-right eccentric economist Javier Milei surprised everyone in Argentina’s primary election on Sunday. Faced with 116% annual inflation, a 43% poverty rate, a plunging peso, and rising crime, voters responded at the polls by awarding Milei the most votes.
With more than 90% of the ballots counted, Milei has 30% while the conservative opposition bloc has just 28%, and the ruling Peronist coalition has 27%.
Elected to Congress in 2021, the fiery Milei was a television personality and economist before making the leap to politics. Often compared to former US President Donald Trump and former Brazilian President Jair Bolsonaro, Milei is known as much for his controversial beliefs (he wants to legalize the sale of human organs, considers climate change a “socialist lie,” and says sex education is a ploy to destroy the family) as his brash style (he belts out rock songs at rallies and claims to have not brushed his hair in decades).
To tackle Argentina’s economic woes, Milei wants to follow Ecuador’s lead and dollarize the economy, implement a “complete reform of the state” by eliminating government ministries, shuttering or privatizing state-run companies, and slashing taxes and cutting spending by 15%.
Sunday’s vote determined which candidates will participate in the first round of voting on October 22 – with those who drew less than 1.5% of the vote ineligible. Analysts say Milei's better-than-expected performance makes him the likely winner of the upcoming election. But it could also lead to higher inflationary and foreign exchange pressures – not only because the government will spend aggressively to reverse results, but also because Milei's victory is the most destabilizing imaginable.
If Milei wins the presidency, however, Eurasia Group analyst Luciano Sigalov says he will face enormous governability challenges as he will lack the majority needed in Congress to pass aggressive pro-market reforms. Strong Peronism and social movements mean he will also find major resistance in the streets.
Migrants use their phones to access the U.S. Customs and Border Protection (CBP) in a shelter near the US-Mexico border in Ciudad Juarez, Mexico February 24, 2023.
Hard Numbers: Glitchy US border app, Japanese no-show canned, Paris stinks, Argentina’s inflation hits triple digits
2.5: A new US government app meant to speed the processing of asylum-seekers and other migrants arriving from Mexico has a rating of just 2.5 stars on Google play. Small wonder, given that the app is reportedly glitchy, difficult to use, and creates opportunities for scammers to prey on migrants and their families.
7: WFH FTW? Not in Japan’s parliament. After failing to show up to work a single time in seven months, Japanese MP Yoshikazu Higashitani was expelled from parliament on Tuesday. Higashitani, a YouTube star who specializes in celebrity gossip under the name GaaSyy, was elected last July as a member of a party whose only issue is to reform Japan’s public broadcast system.
5,600:Paris le Pew! Some 5,600 tons of stinking, uncollected trash have piled up in the City of Light, the result of an ongoing strike by public sanitation workers opposed to the government’s controversial plan to raise the pension age.
100: Argentina’s annual inflation rate has hit 100%, cracking triple digits for the first time since way back in 1991, when, to put things in proper perspective, Maradona was still with Napoli. The country’s soaring prices are a major concern for voters ahead of what is sure to be a super-contentious election this fall.A shopper looks at produce in a market in Buenos Aires, Argentina.
As inflation nears 100% in Argentina, the political class struggles to respond
Though much of the world is suffering from uncomfortably high inflation as economies adjust to the disruptions brought by the pandemic and the war in Ukraine, some countries are grappling with double- or triple-digit price increases. In Argentina, for example, a rapid acceleration of price gains in recent months has economists predicting inflation will reach 100% this year.
We asked Eurasia Group expert Luciano Sigalov to explain the runaway price increases in the South American country and how political leaders are responding to them (or not).
How did we get here?
This is not Argentina’s first bout of very high inflation. The last was in the late 1980s, when inflation topped 4,000%. After a period of price stability in the 1990s, inflation began to accelerate again in 2005 and then skyrocketed over the summer. Prices rose at an annual rate of 83% in September, one of the highest in the world.
Argentina’s longstanding practice of having the central bank print money to finance public spending is the main driver of inflation. More money chasing the same amount of goods bids up prices. Currency depreciation is another driver, because it raises the cost of imported goods, something that is particularly dangerous during a period of high global inflation.
A couple of things happened over the summer to spark a run on the Argentine peso.
What happened?
Earlier this year, Argentina reached a deal with the IMF to refinance a $44 billion loan it received from the multilateral lender in 2018. But in June, concerns started to mount about the country’s ability to comply with the terms of the deal – such as the reduction of the country’s wide budget deficit – prompting investors to sell off the peso. The July resignation of Economy Minister Martin Guzman, the main architect of the IMF agreement, further fueled the sell-off.
How is soaring inflation affecting everyday life?
As prices adjust from one week to the next, a trip to the supermarket has become a surreal experience. People are losing their sense of what things cost and are becoming adept at financial calculations to determine the value of installment plans for purchases. As the pesos in their pockets rapidly lose value, people try to spend them as quickly as possible. This dynamic makes financial planning, and life planning, that much more difficult.
How has President Alberto Fernandez’s administration responded?
To shore up confidence in the local economy and currency, new Economy Minister Sergio Massa has reiterated the country’s commitment to meeting the terms of the deal with the IMF. He is also rolling out a series of measures freezing the prices of key items and offering households targeted relief in the form of subsidized interest rates, tax cuts, and support for inflation-indexed wage deals.
Yet the crisis has created divisions within the administration. Massa wants to prioritize measures to fulfill the terms of the IMF deal, while the powerful Vice President Cristina Fernandez de Kirchner wants more price freezes and government handouts. And no one really has the stomach for the type of broad stabilization program economists say is necessary but that would include politically unpopular measures such as aggressive interest rate hikes and cuts in public spending.
What does this mean for the ruling coalition ahead of next year’s elections?
Soaring inflation and bleak economic prospects spell trouble for the ruling coalition in next October’s elections. Maximo Kirchner, a lawmaker in congress and son of the vice president, reflected the somber mood taking hold among the parties of the coalition when he suggested recently that they lacked a competitive candidate to run for president next year. He said that neither Fernandez de Kirchner nor Massa, thought to be strong potential contenders, would be running, and he played down President Fernandez’s reelection prospects.
So, does the opposition offer some hope of a solution to the current difficulties?
Curiously enough, the troubles of the ruling coalition have led to increased tensions within the opposition alliance. The Together for Change coalition has three potential presidential candidates jockeying for position, and there are growing difference among them over electoral strategies and post-electoral policies.
At this point, the opposition has strong incentives to remain united to ensure as broad as possible appeal in next year’s elections. But the deeper the problems of the ruling coalition grow, the more confident the main opposition presidential hopefuls might become about prevailing on their own, without the support of their alliance partners. That could lead to a weaker opposition-led administration, with less support in congress, making politically costly policy changes more difficult.