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OPINION AND ANALYSIS | 02-03-2024 05:25

Are two Caputos one too many for Milei?

Foreign observers and investors welcome that Milei is a man on a mission to turn Argentina into a more open, more pro-market economy … but they don’t like conflict as the end itself, nor the Casa Rosada’s unwillingness to compromise.

From a distance, President Javier Milei is making a severe political mistake. Foreign investors – not the ones that trade in bonds and futures but the investors in the real world with big bucks sunk or eager to be sunk in Argentina – can hardly understand what happened in Buenos Aires during the summer: almost three months into office, with his honeymoon closer to being declared over, the government did not get any legislation passed through Congress. It was Milei’s call.

Wasting time is not a luxury available for somebody running Argentina. The country’s economy has been stagnant for over a decade and in a slow-motion free fall since 2018. Salaries have systematically lost out to inflation since then, with unionised trades merely trying to match prices with permanent negotiation but always trailing behind. 

On top of that reality, the Argentine people – 55 percent of whom voted for Milei almost four months ago – are enduring a new shock that is unprecedented since the ‘Big Crisis’ of December 2001. The firm PxQ, run by economist Emmanuel Álvarez Agis, compared the decline of real wages at the start of Milei with Mauricio Macri’s 2015-2019 administration and concluded that it took Macri in 2016 seven months to reach the adjustment that Milei slapped on the people in the first month alone. No wonder Macri supports Milei, even if their personalities clash: the difference is that the former went “gradual” with his austerity drive, something he later regretted.

Milei is right and he is wrong when he argues that he is simply delivering on a campaign promise. True: Milei the candidate said he would adjust the economy and that he would move at breakneck speed. But it is also true that Milei was voted into office on an anti-political establishment platform which included the notion, verbatim, that “this time politics will pay for the "ajuste.” Argentines, like any other people anywhere, are used to swallowing campaign lies. This one proved to be a lie a little too early.

To succeed, the government’s shock-and-awe strategy (if it were a strategy at all) needs one thing, quickly: results. The best-case short-term scenario for Milei is nothing glorious: to stabilise the economy, namely lowering inflation, so that people see the light at the end of the tunnel before midyear. This is the job of Economy Minister Luis Caputo, who has unexpectedly turned into the most powerful figure in the administration – bar the handful of closest collaborators who walk into the President’s office in Casa Rosada without knocking on the door: sister Karina Milei, Cabinet Chief Nicolás Posse and political and communications strategist Santiago Caputo.

The latter Caputo, 38, is the nephew of the former Caputo, 58. Are the two Caputos compatible with the Milei administration? If this unambitious economic goal of lowering inflation is not achieved, two Caputos in the inner circle might prove to be one Caputo too many. Milei claims to be rationalising the economy while at the same time he ‘irrationalises’ politics and language. Caputo the minister oversees the first mission; Caputo the spin doctor the second. 

The government’s summer Congressional failure seems to show their goals are diametrically opposite. Caputo the minister knows that the budget surplus he surprisingly achieved in January, the first full month of the Milei administration, is not sustainable in the medium term if he does not reach some sort of compromise with provincial governments and opposition parties. But Caputo the spin doctor, as the guardian of the President’s anti-establishment, anti-system identity, continues to push the head of state to the extremes of political confrontation, both against rivals and potential allies – although Milei does not need too much pushing to go there.

This is the paradox haunting foreign observers and investors. They welcome that Milei is a man on a mission to turn Argentina into a more open, more pro-market economy. They understand bold action was necessary, but as a means. They don’t like conflict as an end unto itself, which is what Milei is delivering daily, nor the Casa Rosada’s unwillingness to compromise for the sake of its own interests. The reasons why the mega “omnibus” reform bill was withdrawn from Congress after one month of negotiation is beyond their comprehension. 

The next question is who will prevail in the unofficial Caputo tug-of-war. By nature, President Milei feeds and is fed by Caputo the spin strategist. But the outcome of the dilemma might depend on reality rather than will: if the economy minister does not manage to avert another devaluation of the peso in the coming quarter, the inflation cycle reloads rather than subside and the President continues to make enemies rather than friends, they might both be in trouble for having created a vicious circle that spirals into an unpredictable crisis of governance.

Marcelo J. Garcia

Marcelo J. Garcia

Political analyst and Director for the Americas for the Horizon Engage political risk consultancy firm.

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