Friday, June 14, 2024

OPINION AND ANALYSIS | 08-06-2024 05:56

Re-election for Milei will require recalibration

Investors, domestic and abroad, continue to have hopes that Milei will deliver … They are suddenly seeing red flags everywhere.

“How does a second term feel?” President Javier Milei asked El Salvador’s Nayib Bukele during the latter’s second inauguration last week. 

“Time is not enough when you introduce deep reform. By the time you start to see the results, the term is over. You need another term to administer the results,” Bukele replied.

Milei is far from even considering results, let alone enjoying the benefits. But the question he posed shows that he sees himself in it for the long term. 

In his favour, the region might be entering a new trend where it is not impossible for ruling parties to stay in office, as it seemed not long ago.

Post-pandemic, governments throughout the region, from all ideological backgrounds, lost elections non-stop. Bukele seems to have begun a new trend in the general elections in El Salvador in February, sweeping to victory with around 80 percent of the votes, even if the democratic rules were slightly floppy. 

Bukele was followed by Luis Abinader in the Dominican Republic, who also won over 50 percent last month. And on the other side of the ideological spectrum, Mexico’s ruling party Morena scored a landslide win on June 2, with a massive transfer of popularity from the outgoing President Andrés Manuel López Obrador to his protégé Claudia Sheinbaum.

All these leaders had results to show off. Bukele cracked down on criminal gangs that had taken hold of the country, Abinader fought corruption with an outsider approach and improved the economy, and Morena in Mexico increased the minimum wage by over 100 percent and distributed billions of dollars in government aid and subsidies.

Milei does not have re-election anywhere near him yet and imagining Argentina in 2027 borders on science fiction. But if he was serious about his question to Bukele and wants to know what a second term feels like, he should begin to muse on what he wants to be credited for once Argentines eventually do weigh up his administration three-and-a-half years from now.

Six months into office, Milei is mostly a one-issue president. He was voted into office to kill inflation, and he is right to focus on that. Two presidential terms ago, a 1,000-peso note (until a year ago the largest denomination bill) bought US$80. Now at the parallel exchange rate, it is worth less than 80 cents of a US dollar. Argentina has gone through hyperinflation in installments.

Milei knows he cannot fail at his job. But he would be wrong to believe it is the only job he has. If private estimates are confirmed next week and May inflation stood at around five to six percent, the government will have achieved something important, but it would be the beginning rather than the end of what it must do. Not only because it will be more difficult to lower it even further in the second half of the year (especially with some key prices like the official exchange rate, utility rates, and transport fares still kept artificially low), but also because if and once inflation is tamed, Argentines will begin to ask what comes next, given the economic pain that has been inflicted on them over the last decade.

At that point, it is not clear where exactly the Milei administration is going. For all the hatred the President expresses against John Maynard Keynes (the President’s followers chant insults against him during rallies, as if he were a rival star footballer), Milei might want to check which of the components of demand the British economist theorised could make his economic programme deliver some growth. Rule out government spending given his “chainsaw,” and domestic consumption due to the severe impact the adjustment is having on wages. What remains then is investment and net exports.

Investors, domestic and abroad, continue to have hopes that Milei will deliver. They want to believe. But this week, markets grew jittery over delays in the congressional debate over Milei's reform legislation and the Central Bank’s inability to accumulate sufficient reserves despite being in the high season for farming exports. They are suddenly seeing red flags everywhere.

The ultimate question is whether Milei’s first “chainsaw” drive has reached a dead end, and the programme needs recalibration – or calibration at all. 

The President’s ego trip might not help. This week, as pressure grew on his friend, Human Capital Minister Sandra Pettovello, over corruption in the management of food assistance, Milei said she was “the best minister in the world.” He said the same about Luis Caputo, his economy minister. Their economic programme is running on the fuel of having “avoided the disaster,” as the President said in a business gathering this week.

Others tried that in the past – and failed: counterfactuals are very unlikely to get you through the re-election finish line.

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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