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Milei is beating the odds. Will it last?
What happens when a country with triple-digit inflation and chronic fiscal deficits elects a chainsaw-wielding populist with a dead dog for chief counsel as president?
Back in November, following the unexpected triumph of the self-styled “anarcho-capitalist” Javier Milei in Argentina’s presidential election, I expected the economy would further collapse in short order.
Thankfully for the people of Argentina, that didn’t happen. In fact, since taking office in December, President Milei’s economic team has seemingly achieved what I (along with most political analysts and economists) thought impossible: Monthly inflation has come down every month for the past three months, from 25% in December to nearly 10% in March, with forecasters expecting the April figure to come in at single digits. The government did this by turning the 5.5% budget deficit it inherited into the country’s first surplus in over a decade, while boosting the central bank’s reserves, lowering its benchmark interest rates, and reducing the money supply – all without destabilizing currency and financial markets.
That’s not to say average Argentines are having a good time (more on this below). But this is a big deal nonetheless, and it’s one that I’m very happy to have been wrong about – just as I’ll be happy if I’m wrong about Ukraine eventually getting partitioned (although I’ll take the under on that).
Why didn’t the economy collapse?
One key reason is that President Milei turned out to be significantly more sensible and moderate than candidate Milei, to most everyone’s surprise.
Unlike Argentina’s last several administrations, which were known quantities to anyone who covered the country, Milei and his inner circle were completely untested outsiders with a reputation for intransigence and ideological dogmatism. Absent a better first-hand assessment of him and the people surrounding him, I was more willing to take his campaign promises and stated views at face value than I would have otherwise. And let me tell you, some of those were … pretty out there.
Upon taking office, however, Milei proved himself more willing to listen, engage, and compromise than I expected. Despite his combative rhetoric, the most institutionally weak president in modern Argentine history – with little support in Congress and among governors – went back on his promise never to negotiate with the so-called “political caste.” He quickly backed off the most outlandish/ambitious (depending on who you ask) libertarian economic policies he and his original advisors had run on – at least for now. The most notable of these were dollarization (aka replacing the peso with the greenback as the local currency), abolishing the central bank, and lifting currency controls, which if implemented on day 1 as pledged would have caused the sharp and immediate crisis that I predicted.
Instead, Milei appointed a strongly pragmatic economic team that has been well-received both by markets and the IMF – two essential players in Argentina’s economic stabilization. Led by the experienced ex-banker Luis Caputo, whom former president Mauricio Macrinicknamed “the Messi of finance,” the government embarked on a sweeping shock therapy agenda consisting of a 54% devaluation and draconian fiscal and monetary tightening. Wisely (but contrary to economic orthodoxy and Milei’s campaign rhetoric), they decided to keep currency and capital controls in place to prevent a disorderly run on the peso from wreaking havoc on markets. The gamble has paid off thus far, with investors, businesses, and the IMF all welcoming Milei’s steps with open arms.
Can it last?
While shock therapy has been successful at balancing the budget and slowing inflation, it has come at a great social cost. The fiscal and monetary austerity has caused a deep recession, with economic activity shrinking more than 10% year-on-year in March, unemployment rising, and real salaries hitting their lowest point since 2003. The government is hopeful that all the sacrifice will soon give way to a V-shaped recovery as output expands in the second quarter thanks to agricultural exports. However, most economists are skeptical, and it’s unclear how much more pain Argentines will be willing to take before they turn on the president’s policies.
Caputo’s original deficit reduction plan envisioned a mix of 60% spending cuts and 40% tax increases. That plan, however, was blocked by Congress earlier this year, leaving the government with no choice but to rely on unpopular spending cuts for the bulk of it. While Argentina's public sector is without a doubt excessively bloated and in need of a good trim, many of the real-term cuts (referred to as “blending” in Argentina) to social spending that the Milei administration is banking on to balance the budget are regressive, recessionary, and therefore socially and politically unsustainable.
Mass protests against budget cuts to public universities two weeks ago drew more than 400,000 people, and labor unions called for a nationwide general strike tomorrow. Public discontent can only intensify as the austerity measures cut deeper, further undermining the president’s ability to pass legislation and limiting his room to maneuver. With the president’s approval ratings starting to trend down (albeit from honeymoon-level highs) and opposition to his policies mounting both on the streets and in Congress, this is the greatest risk to Milei’s plan.
Will Milei and Argentines have what it takes to stick with the treatment until the patient is cured? Or will they let this painful fiscal adjustment and recession go to waste even though their best chance for success in decades could be right around the corner?
As a fan of Argentina (and, you know, people in general), I know what I’m hoping for. But as they say, hope is not a strategy.
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.
Javier Milei, the President of Argentina, speaks at the final day of the conservative conference on February 24, 2024.
Hard Numbers: Argentina in the money, China-Libya drones plot in Canada, Recording Gaza’s casualties, Arms spending peaks
0.2: Argentina is in the black for the first time since 2008. The South American country is starting Q2 with a 0.2% fiscal surplus in quarterly revenues. President Javier Milei took a victory lap and promised to continue his fiscal austerity program, causing bond valuations to jump.
2: Two former UN employees in Montreal were charged with participating in a conspiracy to sell Chinese military equipment to Libya, including large drones capable of carrying multiple missiles. The men are accused of violating sanctions related to the Libyan civil war (2014-2020) between 2018 and 2021. One of the suspects was arrested Tuesday, but the other remains at large.
80,000: The US State Department’s annual human rights assessment found that nearly 80,000 people in Gaza have been killed or injured during the Israeli offensive, amounting to some 3% of the population.
2.4 trillion: The Stockholm International Peace Research Institute found that global military expenditures reached an all-time high of $2.4 trillion, a year-over-year increase of 6.8%. The United States alone made up 37% of that spending, and with China spending another 12%, the two leading military powers cumulatively spent just under half of the world’s entire military budget.
Argentine presidential candidate Javier Milei of La Libertad Avanza coalition holds a placard depicting a dollar bill with his face on it, during a campaign rally in La Plata, Buenos Aires, Argentina, September 12, 2023.
Chainsaw cuts path to new Argentina-IMF deal
Argentine President Javier Milei’s dramatic spending cuts have provoked protests at home, but they’ve won him plaudits from abroad. On Thursday, an IMF delegation lands in Buenos Aires, reportedly to restart a $44 billion bailout program for the crisis-wracked country.
The eccentric, “anarcho-capitalist” Milei, who at times campaigned wielding a chainsaw, promised to slash spending to address an economic crisis that has driven inflation above 150% and plunged almost half of the population into poverty.
Since taking office, he’s halved the number of government ministries, devalued the currency by more than 50%, and deregulated dozens of industries. He’s now asking Congress for another 600 changes that would filet government regulations, expand presidential powers, and crack down on protests.
The IMF, which suspended its lending to Argentina last August after the previous government missed key reform targets, says his actions to date are “bold.” A fresh deal would unlock about $3 billion more in assistance, and not a moment too soon: Argentina owes the fund roughly that amount over the next two months.
The bigger question: Milei’s party has few seats in a largely hostile Congress – his power comes from a popular mandate for change. Keeping that mandate – which he will need to continue his one-man radical reform program – will require him to show, soon, that the economic shock and pain he is inflicting on society is worth it. The clock is ticking.
Demonstrators protest against Argentina's new President Javier Milei's adjustment policy, outside the National Congress in Buenos Aires, Argentina December 21, 2023. The banner reads, "For Sale".
Extreme economic makeover: Milei edition
Ten days after his inauguration, President Javier Milei set out to turn Argentina from a nanny state to a bastion of free market capitalism, announcing a sweeping set of economic reforms that uproot major sectors of the economy and have enraged the country’s powerful labor unions.
The decrees will privatize state-owned companies and strike down regulations in the housing market, export controls, the food industry, and other sectors to encourage competition. Worker benefits, from severance packages to maternity leave, will also be cut.
Thousands of protesters poured onto the streets of Buenos Aires on Thursday in response to the reforms. They were met with a massive show of force from the police, and no signs of backtracking from Milei, who said the participants “suffer from Stockholm syndrome … smitten with the [economic] model that impoverishes them” as he announced that further austerity measures were on the way.
Argentina’s constitution gives presidents the authority to act with authority on most areas of policy during times of crisis, which Milei argues fits the current moment since he devalued the country's currency by 50% last week.
But implementing these reforms will be an uphill battle. The reforms can’t stand if either house of Congress votes against them, which is likely given Milei’s lack of a majority and the opposition in the streets. Milei likely included so much in the decrees with the knowledge that much of it would be struck down – and in the hopes that if he threw enough at the wall, something would stick.
Volodymyr Zelensky
Ukraine faces threat from Western flank
While visiting Buenos Aires on Sunday for the inauguration of Argentina’s new president Javier Milei, Ukrainian President Volodymyr Zelensky was able to buttonhole Hungarian Prime Minister Viktor Orban.
Cameras caught an unimpressed-looking Zelensky sharing his thoughts with a defensive-looking Orban. We don’t know what he said – Zelensky said later that it was a “frank” exchange – but we can guess that the Ukrainian was calling Orban out for acting on behalf of Russian President Vladimir Putin, who is seeking to gain through politics what he has so far failed to gain on the battlefield: Ukraine’s submission.
Twenty months after Russian tanks crossed the border in a failed thunder run for Kyiv, the war is at a stalemate. Ukraine’s improbably successful resistance stopped an outright Russian victory, but a counteroffensive this year failed to make the hoped-for gains, and now Putin’s friends in Western capitals are seeking to capitalize on fatigue with the war to stop the Western arms that allow Ukraine to fight.
Orban, Putin’s best European ally, is threatening to block Ukraine’s accession to the European Union and is arguing against a crucial European aid package for Ukraine at a summit this week, although France’s Emmanuel Macron will try to get him onside. Meanwhile, Orban’s representatives in Washington are meeting with far-right Republicans who want to prevent the United States from approving $60 billion in military aid for Zelensky’s fighters.
Quid pro quo
Republicans are split on the question of aid to Ukraine but united in a desire to stop migrants from crossing into the United States, so President Joe Biden is trying to appease them by putting more resources into securing the southern border.
The White House is wrangling with Senate Republicans to seek a compromise, but the holidays are coming, and they need to make a deal before they all leave for the year on Friday.
“Biden is under tremendous pressure to approve an additional aid package,” says Clayton Allen, Eurasia Group director for the United States. Such a deal would likely help him with voters later, said Allen, since border security “has proven a perennial issue for his reelection chances.”
To stop the increasing number of migrants, Biden is reportedly offering to expel migrants without processing their asylum claims using Title 42, a pandemic-era measure that Donald Trump used to turn away migrants on public health grounds.
If GOP leaders in the Senate can make a deal with Biden before the holiday break, it may allow Speaker Mike Johnson to sell it to enough of his members to get it through the House. On Tuesday, he said that border security was the “hill to die on.” Johnston will likely not be able to convince Freedom Caucus members — the people who are meeting with Orban’s representatives — but he may be able to put together enough votes to get it passed, as he did to avert a government shutdown last month.
Money on the line
Biden’s job may be easier than it looks because congressmen will be motivated by a desire for economic activity in their districts, says Christopher Sands, director of the Wilson Center’s Canada Institute. “All these wars do have a tendency to benefit us in that sense because it's such a big military production that'll help a lot of congressional districts.”
When the horse trading in Washington is over, it seems likely that Ukraine will get money to keep fighting Putin, but the politics is not getting easier as the war grinds on.
“Whether Orban is the mastermind or Putin, we've seen over the last couple of years that the authoritarian countries … have been going for our great weaknesses in democracies, which is free debate,” says Sands. Spreading fake news or propaganda is “the best way to weaken the support for Ukraine.”
Canadian Conservatives change sides
Until recently, all Canadian parties shared a consensus on support for Ukraine. More than a million Canadians trace their roots to that country, so there are good electoral reasons to support Zelensky, but the Conservatives under Pierre Poilievre have quietly started voting against aid to Ukraine. In the run-up to the next general election, Poilievre wants to avoid losing any conservative support to the far-right People’s Party of Canada, which has always opposed helping Ukraine, like populists around the world.
“I think what he understands is that he has to ameliorate the right flank,” says Canadian pollster Nick Nanos. “He's doing the political calculus that if he can pick up three points out of the PPC, that could put him into majority territory.”
The Conservative votes in Canada can’t stop aid to Ukraine, but it is nonetheless a sign that Zelensky’s diplomatic challenges are getting tougher. If the Russians can win in Western capitals, and Ukraine is left to its fate on the battlefield without support from NATO countries, Putin will be able to conquer its neighbor, and the West will be weakened.
“A collapsing USA now obviously has very significant near-term military implications for Ukraine,” says Allen. “It cuts off supplies of artillery and air defense, which are essential to Ukraine's offensive and defensive capabilities.”
But it also raises questions about the durability of US security commitments and guarantees with American allies. “A failure to approve additional Ukraine aid now,” says Allen, “will diminish US influence and leverage in negotiations and interactions moving forward.”
Zelenksy has used skillful diplomacy and media savvy to build global support for his country’s struggle against Russian imperialism, but time looks to be on Putin’s side.
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.
Argentina's economy will get a lot worse before it gets better
Ian Bremmer shares his insights on global politics this week on World In :60.
Will Israel and Hamas finally reach a hostage deal?
We keep hearing about this deal. We're now saying it's imminent, but imminent doesn't mean announced. And, you know, things can go wrong at the last minute still, where the details make it seem like this is going to happen. And what that means is not only we're going to see at least a few dozen Israeli women and children released and some Palestinians, also mostly women, it looks like, released as well from Israel, but that you'll get a temporary ceasefire in three days, five days, and maybe that leads to more diplomacy. It doesn't lead to Israel no longer attacking Hamas. Let's be clear. It's not an actual ceasefire, but it creates more space for people to be talking, especially talking with the Israelis, major leaders in the region. That is something we'll be watching very closely.
What does Javier Milei’s election mean for the future of Argentina?
Well look, it means that the Argentines were absolutely sick of the country falling apart and they were voting between a guy who said he was going to dollarized and get rid of a lot of the government and someone who represented economic policies that have driven the country into a ditch, 140% inflation and massive poverty and, you know, nobody investing and close to a default from the IMF. So, I mean, all of this is a disaster. But Milei, he doesn't have a single governor. He won't have a majority in Congress. He doesn't have an economic team. And his economic plans are mostly vaporware. So, I mean, this is not a country that has the ability to screw around for an awful lot. It's not like the United States in Afghanistan or Iraq. You make mistakes. But the economy is still great. Argentina is not Afghanistan, but they are in serious, serious trouble. And so, yeah, the economy is going to get a lot worse before it gets better. And we'll watch that. It's very expensive to dollarize by the way. And so that means you got to have to print a lot more. I suspect that this is going to be a lot more hardship on the backs of a lot of Argentines. Okay.
Happy Thanksgiving! What world leader has the most to be thankful for this holiday season?
What a hard thing. I mean, all leaders should be thankful because, you know, in principle, they're doing a hell of a lot better because they're representing their people and they should appreciate that and they should take that seriously. And a lot of them don't. But I guess I probably say Modi. Narendra Modi in India, because I mean, he is a very popular leader of the world's largest democracy, 1.4 billion people, the most populous country in the world, is pretty democratic. It's growing economically. It is a leader of the Global South, but it's also with increasingly stable relations with the United States, with Japan and with Europe. And Modi has accomplished a lot of that. So he has a lot to be thankful for. And he is not going anywhere anytime soon. So there's that.
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