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ARGENTINA | 20-11-2023 17:20

Milei’s challenges in Argentina: an economic shock without a congressional majority

Javier Milei’s government programme requires major structural reforms – will he be able to deliver shock therapy?

Among chants of “Liberty, liberty!” and calls to to end the political "caste," the ultra-liberal anti-establishment supporters of Javier Milei were delighted as he was elected President of Argentina.

Milei has promised to dollarise the economy and put the serious crisis endured by the country's population behind them. 

Yet he will have the challenge of governing with minorities in Congress and a large sector of society already mobilising against him.

The “shock therapy” promised by Milei to balance the budget consists of privatising state-run companies and cutting back public expenditure by 15 percent.

This would appease the International Monetary Fund (IMF), to which the country is struggling to repay a US$44-billion loan granted in 2018 to then president Mauricio Macri.

Milei also advocates ending chronic subsidies to transport, power and water, releasing prices and eliminating export taxes.

The key part of his project is the dollarisation of the economy, in order to reduce the 143-percent annual inflation with a stable currency.

“Milei’s government programme requires major structural reforms, especially if he intends to keep his promise to dollarise the economy and eliminate the Central Bank”, said Jimena Blanco, analyst of the firm Global Risk Insight.

“However, the former requires dollars which the Central Bank lacks right now, and thus the likelihood of an immediate dollarisation is still remote”, she added.

Yet Milei asserts that the project will be carried out with the dollars Argentines have been keeping under their mattresses for years.

His main economic advisor, Emilio Ocampo, explained in a talk in August that dollarisation “is the alternative with the least chance of failure”.

“Our addiction to populism has led us to being unable to have a stable currency (…), which is why a tough monetary reform is needed”, he added.

Argentina, historically proud of its large middle class, has a deeply rooted culture of social aid, with powerful unions and organisations.

This is also in addition to “a lot of anti-Milei organisations which did not exist until August 13," said Iván Schuliaquer, political scientist from the University of San Martín, in reference to the primaries where the libertarian surprised with the greatest number of votes.

Milei will be inaugurated with “an already activated resistance,” he added, referring to human rights organisations, feminists, LGBT collectives, environmentalists and even football clubs who consider him a threat not only to their own existence, but also to democracy.

Gabriel Vommaro, a politicical scientist from the same university, fears the consequences of this scenario in a country where four out of every 10 Argentines are poor and half the population receives some sort of aid or subsidy.

“Milei comes along with a political and social confrontation situation which one can anticipate in a context of economic adjustment, especially of public expenditure and public officials”, he said.

“Perhaps with a repressive path which we would do not know how it could end up”, he added.

Javier Milei’s young party, La Libertad Avanza, joined Congress in 2021 with three deputies and now it is the third force -38 out of 257-, in a Chamber of Deputies where no group has a clear majority, but where the Peronist bloc is still dominant (108).

In the Senate, La Libertad Avanza has seven out of the 72 senators.

In order to win, Milei needed the support of the centre-right Juntos por el Cambio coalition, headed by Patricia Bullrich, and former president Macri, the second minority with 93 deputies.

However, this alliance damaged the unity of the coalition, which became divided over whether or not to support Milei in the second round.

Milei will not have the support of governors, which is crucial in a federal republic.

Given that, the president elect “will have to make concessions he did not intend to make before the primaries,” Schuliaquer said. 

The president elect will have to rebuild bridges with key partners of which he has been very critical, especially Brazil and China, Argentina’s two main trading partners.

“I don’t make pacts with communists. I’m a defender of peace, liberty and democracy”, said Milei in his interview with American Tucker Carlson in September.

He recently explained that it does not prevent businesspeople from negotiating directly with them, without State intervention.

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