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FILE PHOTO: Brazilian president Lula da Silva hugging Ursula von der Leyen the President of the European Commission at the 3rd EU-CELAC Summit in Brussels, Belgium on 17 July 2023.
EU and Mercosur near trade deal (at last)
It has been a long four years since the free trade deal between Brussels and Latin America’s largest trade bloc was agreed in principle, but all sides now, finally, look close to signing on the dotted line.
European Commission President Ursula Von der Leyen and Brazilian President Luiz Inácio Lula da Silva plan to meet on the sidelines of the COP28 summit in Dubai to push through the final hurdles. If all goes well, the European Commission’s vice president for trade may attend the Mercosur summit in Rio de Janeiro on December 7 and bring an early Christmas present home for EU exporters.
The deal would create an integrated market of over 780 million consumers, one of the largest in the world. The European Commission estimates it will save over $4.4 billion in tariffs alone, and give Europe better access to minerals crucial for renewable energy applications. Farmers in Mercosur countries meanwhile – that’s Brazil, Argentina, Paraguay, and Uruguay, with Venezuela suspended, and Bolivia joining soon – are expected to get a nice boost, too, especially for their exports of beef, coffee, and soybeans to the EU.
So what’s the holdup? Environmental concerns, mostly. Some European member states have pushed for stricter external monitoring and protections against Amazon deforestation than Brasilia can stomach.That said, Lula has signaled he is ready to compromise in order to make good on his earlier pledges to revitalize Mercosur as a formidable trade power.
And Brussels has its own reasons to be flexible: after failing to land big potential deals with India and Australia, a third major trade failure could pose problems for the centrist coalition presently in charge as it tries to fend off surging right-wing challengers in upcoming EU parliamentary elections.
The effort could still fall short, but Eurasia Group expert Julia Thompson says all sides are aware the moment of opportunity is ephemeral.
“Even if they can't get everything they're expecting,” she says, “negotiators will try to advance the deal.”
But if they don’t, she warns, “it will probably go back into the fridge and take ages to be rediscussed.”
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.
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.
An Argentinian flag waves outside the Casa Rosada Presidential Palace ahead of the November 19 runoff election, in Buenos Aires, Argentina November 15, 2023.
It’s gonna be a nail-biter in Argentina
Would you promote an economy minister to be president if he’d delivered 140% inflation? You might if the other option was “shock therapy.” That’s the choice facing Argentines this Sunday as they vote in a runoff election between Sergio Massa, the economy minister of the ruling party, and libertarian wildcard candidate Javier Millei, who wants to “blow up” the country’s political lethargy.
Polls show that the word most often associated with Milei is “crazy,” but that hasn’t hurt him in the topsy-turvy world of Argentine politics.
Milei’s combative public persona and radical proposals to fix Argentina’s perpetually floundering economy – including dollarizing the economy, shutting the central bank, and slashing government spending by 15% of GDP – appealed to voters disaffected with politics as usual.
He has risen rapidly from a fringe outsider to taking second place in the first round of voting – Milei garnered 30% of votes to Massa’s 37%, and while Massa did better than expected, he fell short of winning outright.
Pre-election polls point to a close contest in the second round. One particularly effective tactic for Massa has been reminding Argentines accustomed to extensive subsidies how much more their bus commute or clinic visit would cost if Milei fires up his fiscal chainsaw. Both campaigns have dived headfirst into artificial intelligence, with an especially memorable deepfake showing Milei discussing how a free market for human organs would work.
If Milei does come out on top, he'll lack the majorities in Congress he needs to pass his boldest proposals. Policy paralysis is not a recipe for taming inflation. Massa would have a freer hand with the largest factions in both houses and has promised to re-engage with the International Monetary Fund, but he’s not likely to systematically reform the state to put the budget on a solid footing. For the 40% of Argentines who have slipped into poverty, that means money is likely to stay tight whoever wins.Argentine Economy Minister Sergio Massa leads in Sunday's first-round elections.
Peronists stage surprise comeback in Argentina
Argentina came closer to electing a new president on Sunday. In the first round of run-off elections, Peronist Economy Minister Sergio Massa defied expectations, clinching 36.7% of the vote to finish ahead of populist firebrand Javier Milei’s 30% and conservative candidate Patricia Bullrich’s 23.8%, with most ballots counted. The top two contenders will face off in a final round of voting on Nov. 19.
Pollsters had predicted the libertarian Milei would win on the first ballot, which required 45% of the vote or 40% with a 10% lead over the closest opponent. Massa’s Peronist party had taken much of the blame for the dismal state of Argentina's economy, where inflation has hit triple digits and two in five citizens live in poverty. Milei appealed to voters looking for change, preaching radical solutions like scrapping the peso, dollarizing the economy, abolishing the central bank, and cutting public spending by at least 15% of GDP.
But in the run-up to the vote, Massa rolled out some populist tactics of his own, granting welfare checks to workers, bonuses for retirees, and abolishing income taxes for 99% of the population. He also claimed that bus and train fares would rise sharply if he lost and emphasized the importance of Argentina's social safety net. Analysts say the institutional strength of the Peronist brand, as well as political polarization between left and right, helped explain Massa’s surprising comeback after his second-place finish to Milei in the August primary.
"It's amazing that the economy minister of an unpopular government with inflation accelerating to above 130% can be competitive," says Daniel Kerner, head of Eurasia Group's Latin America practice, noting that it "speaks to the strength of Peronism."
The eccentric Milei, meanwhile, cut a polarizing figure: The 53-year-old economist claims not to have brushed his hair since age 14, owns five cloned mastiffs, and wields a chainsaw at rallies. Massa and Bullrich criticized Milei for disparaging the country and advancing “bad and dangerous ideas,” perhaps influencing more voters to stick with the status quo than opt for the unknown.
After ballots were counted, Massa talked about “building a government of national unity,” “free education,” and promising “more order, and to build clear rules.”
Milei's Sunday night speech was described as “conciliatory.” “We can’t keep destroying ourselves with kircherismo," he says. "For everyone who wants change, we’ll need to work together.”
Financial analysts say Massa’s first-place showing rules out a sharp devaluation of the official exchange rate in the short term, though markets could still see turmoil. Between now and the Nov. 19 runoff, “we’re going to continue seeing high inflation and pressure on the exchange rate, but we’re not going to see a full-blown currency crisis and hyperinflation, that’s ruled out,” said Martin Rapetti, executive director of Buenos Aires-based consulting firm Equilibra.
But markets could still be in for a wild ride in November, should Milei pull off a win. The big question now is whether Milei can woo Bullrich's voters in the second round. "Most [of them] will vote for Milei," says Kerner, "but not all of them. Milei is too radical for some, and Massa will try to appeal to them," he adds, noting that he expects a very tight race to the finish.
Supporters of Argentina's presidential candidate Patricia Bullrich of Juntos por el Cambio party attend the closing event of her electoral campaign ahead of the October 22 general election, in Buenos Aires, Argentina October 19, 2023.
Argentina’s wild presidential election
Argentines will vote on Sunday in the country’s most unpredictable, topsy-turvy election in recent memory.
The leading candidate is shaggy-haired firebrand Javier Milei, a social-media-savvy political outsider who describes himself as an “anarcho-capitalist.” Milei wants to radically shrink the government, adopt the US dollar, and ban sex education.
His more colorful proposals include legalizing the sale of human organs and converting to Judaism. Milei came in first in a presidential primary in August and is currently polling above 35%.
Argentines are fed up. Milei’s popularity, especially with younger voters, arises from widespread frustration with the established parties – and it’s not hard to understand why. Argentina is suffering through its worst economic crisis in decades: Inflation has topped 120%, three out of five Argentines now live in poverty, and the peso is one of the worst-performing currencies in the world.
“Milei has been able to capture this disenchantment as he lashes out at all political parties,” says Luciano Sigalov, an Argentina expert at Eurasia Group.
Ironically, Milei’s pledge to dollarize the economy has contributed to an even greater selloff of the peso, adding to precisely the economic woes that have helped to make him the frontrunner.
“His dollarization proposals sound increasingly attractive to many who see the value of their pesos rapidly evaporating,” Sigalov points out.
But Milei isn’t the only show in town. There are two other formidable candidates:
Former Security Minister Patricia Bullrich. She has built her campaign around a promise to “restore order” and is polling at 29%. Although Argentina’s homicide rate is one of the lowest in Latin America, several high-profile instances of violence by drug gangs in the port city of Rosario — one of which included a threat to soccer legend Lionel Messi — have put public safety on the ballot.
Economy Minister Sergio Massa. The candidate of the currently governing Peronist coalition is polling at 26%. As a moderate and technocratic voice within typically left-wing Peronism, Massa is seen as a safe pair of hands who has credibility with the private sector and has strong support from his own coalition.
The election rules are complicated. To win outright, the top candidate must get at least 45% of the vote OR must surpass the runner-up by at least 10 points. So, for example, you can win with 42%, but only if the runner-up has 32% or less.
If no one is able to meet either of these conditions, then the top two finishers will head to a runoff on Nov. 19.
Argentinian presidential candidate Javier Milei attends a news conference in Buenos Aires, Argentina, on Oct. 11, 2023.
Who the heck is Javier Milei?
Perhaps you’ve heard about Argentina’s new presidential frontrunner. His name is Javier Milei, and his raucous political rallies feature him as a ranting, raving, rock star who wants to “blow up” the country’s political lethargy.
His charisma approaches the level of Donald Trump, a leader he says he admires. He wants to make the US dollar Argentina’s legal currency, close down the country’s central bank, and legalize the sale of human organs without government interference. He has argued that sex education in Argentina’s schools is part of an elite plot to destroy the traditional family.
Milei’s campaign style suggests he’s usually the last to leave the karaoke bar.
And it’s precisely because of his libertarian – some would say anarchic – views and his open hatred for a political class that has failed to pull Argentina from a chronic economic crisis that his star is on the rise.
We know he’s a leading contender because Argentina has a political process that asks voters to indicate their preference for president two months before the election. In August, Milei won a jaw-dropping 30% plus of the vote in a race that included 22 candidates. The main center-right opposition bloc won 28%. The ruling leftist Peronist coalition took 27%.
The election will be held on Sunday, and with an inflation rate of 116% that keeps 40% of the country in poverty, it’s not hard to see why many voters might turn to a self-proclaimed political arsonist.
If this political dynamic sounds familiar, it’s because anti-politician politicians have become a phenomenon in recent years. Trump represented a complete break with the American political class, personified perfectly by Hillary Clinton. In 2018, exhausted by the scandals and stagnating economy under left-wing governments, Brazilian voters turned to profane former paratrooper Jair Bolsonaro.
But this isn’t just a right-wing phenomenon. French voters chose Emmanuel Macron in 2017 in part because he challenged both the center-right and center-left establishment parties that dominated France for decades. Like Macron, Mexico’s Andrés Manuel López Obrador created his own political party and drove it to power in 2018 by challenging a political class perceived as hopelessly corrupt. On the left, Colombia’s Gustavo Petro represented a similar let’s-just-start-over approach to political problem-solving.
It should be noted, however, that Trump was impeached twice, indicted four times, lost his bid for reelection, and is now running again with a national approval rating of 40%. Bolsonaro lost his bid for reelection too, and he’s now banned from running for office for eight years. Macron and Petro have become deeply unpopular. Only López Obrador has managed to defy political gravity while governing as a political outsider.
Argentina’s voters will decide on Sunday just how serious they are about a Javier Milei presidency. The most recent polls say the vote might be close, but Milei remains the favorite.
Viewpoint: Deepening crisis in Argentina bolsters Milei’s presidential prospects
Outsider candidate Javier Milei is consolidating his position as the frontrunner ahead of Argentina’s Oct. 22 presidential election even as investor concerns about his policy promises exacerbate the country’s financial turmoil. Milei’s surprising first-place finish in the recent primaries has prompted a currency sell-off that is fueling price pressures in an economy where inflation is already running above 100%.
Economy Minister and ruling party candidate Sergio Massa has called for the formation of an anti-Milei coalition while announcing pre-election giveaways that are likely to further fuel inflation. In a sign of mounting hardships, there have been outbreaks of looting at stores across the country.
Yet the more economic conditions deteriorate, the more appealing voters will find Milei’s promises for radical change, according to Eurasia Group expert Luciano Sigalov. We asked him to explain.
Why do investors fear Milei?
Milei first made his name as a wild-haired right-wing economist engaging in fiery debates on television talk shows and has brought that combative approach to the campaign trail with scathing criticisms of the political establishment and promises of wholesale change. He has proposed substituting the dollar for the Argentine peso, closing the central bank, and dramatically downsizing the government, among other things.
Investors fear the potential for these policies to create tremendous economic, political, and social instability. Milei lacks a strong party structure or a clear plan. He would not have majorities in Congress to advance his agenda and would face enormous resistance from unions, social movements, and the Peronists who have ruled the country for most of the last 20 years.
If Milei’s proposals are so risky, why have voters embraced them?
After more than a decade of stagnant growth and soaring inflation, Milei’s message of change has broad appeal. And the worse the economic situation gets, the more it resonates. The fact that Milei is truly an outsider candidate makes novelty one of his biggest strengths. Voters see him as “unpolluted” by the “political caste” he seeks to overhaul. He has also managed to convince them that the bulk of the adjustment would fall upon politicians, in the form of lost jobs and privileges, and not on regular citizens.
It is important to note, however, that polls show that strong anti-establishment sentiment among voters does not necessarily translate into an unconditional endorsement of Milei’s radical agenda, which includes the privatization of healthcare, education, and pensions.
How would you place Milei in the international context?
Milei’s rise takes place in a global context of elevated voter frustration and discontent with economic and political elites. Public opinion experts say voters tell them the “system is broken.” Similar to far-right populists such as Donald Trump and Brazil’s Jair Bolsonaro, Milei has tapped into that sentiment by turning politics into a no-holds-barred contest between the “good guys” and the “bad guys,” the latter represented by traditional political parties from the left to the center-right of the political spectrum.
One of Milei’s most popular proposals is dollarization. What explains its appeal and how would that work?
Dollarization in theory offers the potential to end rampant inflation by replacing the volatile peso with the stable dollar. Other countries in Latin America have done it, including Panama, Ecuador, and El Salvador, with varying degrees of success. Argentina itself took an intermediate step toward dollarization in the 1990s with the so-called convertibility regime that pegged the peso to the dollar with a fixed exchange rate and was initially successful in bringing down inflation.
Formal dollarization would require changing several pieces of legislation in Congress to make the dollar the country’s official currency. A de facto dollarization could occur if circumstances encourage people to voluntarily stop using the peso and use dollars instead (dollars are already used for many transactions in Argentina). This usually happens only in dire circumstances such as bouts of hyperinflation, when paper bills have become literally worthless. Argentina has previously experienced bouts of hyperinflation, usually defined as an annual rate of more than 1,000%.
What are the risks of dollarization?
The challenges are immense, as underlined by Argentina’s experiment with a dollar peg in the 1990s, which ultimately failed when authorities could not maintain the peg, forcing a chaotic exit from the policy and a financial crisis. This time around, Milei would not be able to get congressional approval for his proposals. That could lead him to attempt a de facto dollarization by removing foreign currency controls and triggering hyperinflation – a sort of scorched earth strategy that would trigger enormous political and social backlash.
Even if the country managed to absorb the initial shock of dollarization, it would lose its control of monetary policy, so it would not be able to lower interest rates to stimulate the economy in a downturn or raise them if activity overheats. Moreover, it would lose the ability to better compete in the global market for goods and services through a weakening of the national currency. Therefore, decreasing wages or shedding jobs would be the available options to improve competitiveness in event of an external shock. This all points to negative fallout for growth and employment.
Assuming Milei is elected, will he be forced to moderate his proposals?
That’s the million-dollar question. It seems that a highly mobilized society as well as institutional factors – the lack of majorities in Congress or the support of provincial governors and the country’s reliance on IMF support – would force him to moderate somewhat. However, he is convinced of the wisdom of his program to partially dismantle the Argentine state, so he is unlikely to make compromises without a fight. Not to mention the fact that he thinks he’s a genius and that anyone disagreeing with his arguments is ignorant. But if he were to move forward with his plans to overhaul longstanding public services, he would be swiftly met by large street protests and falling approval ratings.
Edited by Jonathan House, Senior Editor at Eurasia Group