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ARGENTINA | 19-11-2023 21:20

Argentina takes leap into unknown with Javier Milei as president

Attention will now turn to how Javier Milei implements his most contested measures with only a handful of representatives in a fragmented congress and an impatient electorate. He will take office December 10.

Libertarian outsider Javier Milei won Argentina’s presidency promising a radical shake-up to fix decades of policy mismanagement, a strategy that resonated with a populace suffering under a nosediving economy, a prolonged currency meltdown, and one of the world’s fastest inflation rates.

With 97% of ballots counted after Sunday’s runoff election, Milei took 56 percent of the votes to 44 percent for Economy Minister Sergio Massa of the incumbent left-wing Peronist coalition, according to the official electoral authority. Massa conceded in a speech to supporters before the results were released.

“Argentines chose another path,” Massa said in Buenos Aires, calling on Milei to ensure economic and political certainty during the transition. Milei supporters flooded the capital waving the national flag as cars tooted their horns. 

The result hands Milei a mandate to pursue campaign pledges including ditching the peso for the US dollar and shuttering the central bank, while undertaking drastic cuts to public spending in an attempt to jolt the country of 46 million out of its malaise. 

Yet Milei’s brand of shock therapy sets Argentina on a path of deep uncertainty, with some economists warning that dollarising the US$622-billion economy at a time when international reserves are depleted could tip the nation into another bout of hyperinflation. International Monetary Fund officials have meanwhile called on the next government to swiftly reset the economy, emphasizing that there’s no time for gradual policies. 

The fact that Argentines opted for radical change instead of the continuity offered by Massa and the once all-conquering Peronist movement is testament to the pain they are feeling as inflation gallops toward 143 percent, robbing them of their buying power. The libertarian economist gave the clearest albeit riskiest answer to the everyday reality of runaway price acceleration, voters’ biggest problem.

Attention will now turn to how Milei implements his most contested measures with only a handful of representatives in a fragmented congress and an impatient electorate, with more than 40 percent of Argentines below the poverty line. He will take office December 10.

Before then, the Central Bank has nearly run out of international reserves to prop up the peso, meaning a large currency devaluation is expected any day now. Monday is a public holiday in Argentina but the country’s offshore assets will be trading in international markets. 

In his concession speech, Massa called on Milei to meet with President Alberto Fernández to start “a transition plan” to establish political and institutional direction to the country.

“A period of long uncertainty starts,” said Daniel Kerner, Latin America director at Eurasia Group. “Milei doesn’t have a team and his plan is very difficult to implement. And he will have an opposition very mobilised from the beginning.”

 

Chainsaw cuts

A one-time legislator without executive experience, Milei, 53, built his platform by linking Argentina’s history of high inflation to a decay in the political class through expletive-filled tirades in TV talk shows. Illustrating his pledge to drastically reduce the size of the state, Milei regularly said he would shred it to pieces as he wielded a chainsaw at huge street rallies, which became a symbol of his defiance of the status quo.

Despite his non-existent party structure, Milei placed first in an August primary, shocking the political establishment and revealing the depth of voter anger with their current leaders. His win triggered a fear-mongering campaign by Massa that flipped the primary result in October’s first-round vote, when the main pro-business bloc of former president Mauricio Macri, now led by Patricia Bullrich, was eliminated.

Bullrich subsequently endorsed Milei, who held a narrow poll lead over Massa going into the run-off. But the scale of Argentina’s economic misery was a challenge too far for Massa’s presidential bid. Milei meanwhile managed to hold off a unified Peronist movement that mobilised its formidable political machinery to try to retain power.

 

China, Brazil

The win for the free-market theorist who’s pledged to reduce state interventionism to a minimum is at the same time a loss for Brazil and China, Argentina’s two top trading partners. Milei said throughout his campaign he would freeze relations with the economic powerhouses because they are “socialists.” 

Brazilian President Luiz Inácio Lula da Silva, who openly backed Massa, wished the new government success without mentioning Milei in a post on X, the platform formerly known as Twitter. “Brazil will always be ready to work with our Argentine brothers,” he said. 

Milei went so far as to refer to China as an “assassin,” and then clarified that he would still allow free trade between private enterprises, illustrating the challenge he faces in turning campaign rhetoric into reality. Total trade with China and Brazil was worth some US$55 billion last year, almost three times the value of commerce with the United States, Argentina’s number three trading partner.

Unmarried and with a coterié of dogs named after economists, Milei will be Argentina’s first formally-trained economist elected to the top job — credentials he’ll need to tackle the titanic task of fixing the crisis-prone nation when he takes office.

Argentina faces external debt payments of US$22 billion next year including interest due to international bondholders and the IMF that will require “a big current account surplus amid a stabilisation plan,” according to Martin Castellano, head of Latin America research at the Institute of International Finance.

The fate of Argentina’s US$43-billion programme with the IMF now falls to Milei. The programme, one of the few sources of international financing for Argentina, is way off track as Massa hasn’t complied with any of the key targets that are usually crucial for the IMF to continue disbursing money.

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by Manuela Tobias, Patrick Gillespie & Ignacio Olivera Doll, Bloomberg

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