December 16, 2023 - 8:00am
This week, Javier Milei was sworn in as president of Argentina. His election comes at a time of introspection for the international (if not the Latin American) Right. In Italy, Giorgia Meloni has disappointed conservatives and populists for failing to stem uncontrolled immigration as well as her staunch support for Ukraine. In Spain, conservatives suffered a brutal humiliation after Pedro Sanchez secured reelection with the backing of Catalan separatists. Will Milei follow suit by campaigning as a populist and governing as a centrist?
The answer depends on the criteria used to judge his presidency. Already, the president has backtracked on eliminating the central bank and cutting relations with Brazil and China. But these decisions are secondary to the central goal of Milei’s presidency: reducing inflation. On that front, it’s difficult but certainly possible that “Captain Anarchocapitalism” will succeed in fulfilling the aims of his superhero alter-ego. Just days ago, the administration announced a devaluation of more than 50% of the Argentine Peso — with subsequent devaluations of 2% to come on a monthly basis. The objective of these measures is to finally stabilise the overvalued peso by turning Argentina’s current account deficit into a surplus.
By devaluing the peso and cutting export taxes, Argentina should be able to make its agricultural exports more competitive and reduce its large trade deficit — a key requirement for amassing funds to pay Argentina’s debt with the IMF and other lenders. Of course, devaluing too much will lead to further inflation as the peso loses buying power, particularly of imported goods. That Milei has chosen a more gradual approach to devaluation is prudent but is still not enough to repair the country’s economy.
The president is betting that by drastically cutting spending and subsidies as well as privatising state industries, Argentina will finally be able to pay for its obligations without printing money nor piling on more external debt. The problem here for Milei — who has stated he wants to cut spending by 5% in 2024 — is twofold. On the one hand, drastically cutting spending will require the support of Congress, where Milei’s coalition lacks a majority in the Senate. On the other hand, if he succeeds in drastically cutting spending, it will almost certainly lead to large increases in unemployment and reduced economic growth.
Similarly, while privatising state industries and cutting subsidies may alleviate fiscal pressures in the short-term, it will also lead to higher energy prices — a key driver of inflation. In either case, the spectre of mass protest will loom large during most of Milei’s term. Cognisant of this scenario, yesterday, the President announced a novel security protocol giving the army the right to break strikes and arrest protestors.
The reality is that Argentina has a long road to recovery. It should be noted that Chile’s Pinochet took more than 10 years to stabilise inflation — and caused mass unemployment in the process. Milei, however, will have to wrestle with the pesky trappings of democracy that otherwise would have led to Pinochet being thrown out of office.
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SubscribeIt’s worth asking what allowed Argentina to be so prosperous in the past.
Before the 30s, it was apparently among the world’s top ten richest nations per capita.
What prevents a return to prosperity?
John Gray wrote an article mentioning this in the NS a few months ago
Beef was very important. Normal people couldn’t afford steaks and Fray Bentos came along with its canned processed beef. We lived on it for years before meat became readily affordable and available.
Argentina was wealthy a century ago because it had a strong peso and an advanced agricultural exports based economy. It will never be able to return to that. America and China will eat their lunch on both fronts.
He needs to watch his back, the Argentina’s deep state with fight him every step of the way. Politicians, bureaucrats, Unions, big business all have a stake in the current corrupt order of things. What side of the political spectrum they are on dose not matter, They all in on it. He may even face a coup if they get desperate enough and run out of options, its not on unheard of in that part of the world and certainly not in Argentina.
Milton Friedman’s visit to Chile in 1975 led Chile to be the wealthiest country in Latin America.
“On the other hand, if he succeeds in drastically cutting spending, it will almost certainly lead to large increases in unemployment and reduced economic growth.”
This is a perennial mistake made by most economic commentators about austerity imposed upon government spending. It is not the reduction in spending per se that is the point of it; it is the permanent reduction of spending upon things that don’t possess value which frees up spending on things that make more sense: this is the point of austerity.
It is, in other words, the public sector equivalent of the private sector’s creative destruction, in which capital gets reallocated more efficiently by first unallocating it from where it’s not efficiently used. In both cases the desirable effect is not what gets destroyed in the process, it’s what gets created afterwards.
The public sector, not being subject to market discipline on a constant basis, is far more prone to wasteful spending than is the private sector, and is far better at defending continued wasteful practices than is the private sector. Public sector spending should never, ever be defended solely on the basis that it props up consumer activity. That is never an acceptable argument, and it ought to be called out wherever it appears.
That said, there’s a right way to go about killing off pointless government spending and a wrong way. Margaret Thatcher did a mostly-good job in the UK in the 1980s, but one major failing was that her government failed to appreciate how long the economic scarring of post-industrial communities would last. I don’t pretend to know anything at all about the Argentinian economy, but assuming the democratic system has returned the government the country needs, I wish them all the best. It’s not an easy road, but done right it’s worth it.
Perhaps the clue is in the name. Argentina means ‘made of silver”.
Giving the army the right to break strikes and arrest protesters sounds sinister
Indeed. For me, this was also startling. And doesn’t sound at all democratic, let alone libertarian… Sad…
Are unions democratic? Libertarian thinking tends to see them as just labor cartels, which should be illegal as are other cartels. Phrased differently, if CEOs can’t form a union to lower wages, why can workers form unions to raise them?
Arresting protestors is similar, it can be drawn as pro or anti democracy. After all, if most people vote for something and then violent protests topple the government, the protests are the anti-democratic thing. Given that Milei is a libertarian and both marches+strikes are left wing battle tactics, it’s inevitable that they will come to blows over the issue.
I personally am a libertarian and, if made king for a day, would introduce absolute free speech combined with all protests being banned. Protests are licensed by the state after all, so they amount to a way for the civil service to pressure elected leaders. They don’t play any role in actual democracy, because you’ll only be allowed to protest if you are protesting for policies the political establishment already supports. See the divergent fates of anti-lockdown protestors vs Extinction Rebellion.
Excellent comment. ‘Protests’ is a bit like ‘freedom fighter’ – breaking the law to agitate for different laws is noble if the laws are unjust but merely criminal if they are just.
Remarkable. You subscribe to something called UnHerd and you’d ban protesting (in the street). I’d contend you massively lack historical perspective and just grumpy about Protests you don’t care much for such as ER. I’m no great fan of ER and some of their actions do require the Law to step in, remove/punish etc. But your full bounded jump to banning all such Protest utter twaddle. Fortunately unlikely you’ll be made King for a Day.
Thank you for providing more context and nuances. You make many valid points and I largely agree with you, but my approach was more general.
Unions might be democratic or not, but if the freedom of association is to be upheld, then we cannot carve out unions from it, I would believe. Hence, the right to form and join unions is intrinsically democratic and if unions are weaponised for purposes different from doing ‘what they say on the tin’, that would be a different story.
When I wrote about the right to protest, I thought exactly about the anti-lockdown protests and the police brutality towards peaceful citizens. I share your indignation with the difference of treatment of anti-lockdown protests v. XR et al., the latter being condoned and protected by the police. Still, here the case is about double standards, which should not have place in a democratic society, not about the right to protest per se, I would argue.
I have some other points, but am afraid of creating of a TLDR situation 😉
Thank you once again for your interesting and thought-provoking post – such comments make me appreciate even more my presence in UnHerd 🙂
I don’t really understand this author’s perspective. He seems to think there is no possible future prosperity for Argentina except as a “resource colony.”
But world history has demonstrated time and again that the foundation for economic prosperity isn’t natural resources but human ones – structuring the economic order so that, via the ol’ invisible hand, people’s self-interest leads them to satisfy *other* people’s needs and wants. This is no mystery – it’s the impartial enforcement of the rule of law, well established property rights, government non-intervention and deregulation, etc.
It’s not confusing – it’s just hard. So in the end, Argentina will succeed, like all democratic societies do, by voters understanding that long-term success comes at a short-term cost. Milei’s theatrics seem to have captured the electorate’s attention in a way that previous politicians did not. Good luck to him –
Brother (author here), what I’m arguing is that resource colonies only ever experience prosperity temporarily…until the price of exported resources drops. Rule of law, proper rights etc are important but development has always been the product of industry and manufacturing – the promotion of which requires some level of state intervention. Libertarians such as Thatcher and Milei believe neither in industry nor government. Consequently the result for industry will always be the same as a previous comment noted. My broader point is that Argentina will never become a developed country so long as it is a resource colony. It’s decline since the 19th century was the inevitable outcome of staking everything on agriculture.
Thanks for replying. It sounds a bit like you’re saying that economies which are over-reliant on a specific sector – say, commodities – are susceptible to dangerous shocks. No disagreement there. But I don’t see why government intervention is necessary to achieve more varied economic activity. Once you get over the hurdle of basic civil society (rule of law, property rights, etc.), then human ingenuity, social capital, stable domestic lives, robust educational opportunities, etc., provide all the base conditions necessary for humans to create and develop a wide variety of successful economic enterprises in a country as large and varied as Argentine. I have faith in the Argentine people – but none in Argentine politicians.
I sympathize with your sentiment. I would only note that industrial policies in the form of tariffs, local content requirements, subsidies, etc were or still are used in every county that successfully developed: usa, western Europe, Japan, South Korea, Taiwan. Industrialization doesn’t happen on its own. That’s not to say that government intervention is a magic bullet, look at Zimbabwe but it’s not diabolical evil either. Consider this, if the US has adopted free trade during the late 1800s as the UK advised, it’s industry would have been gobled up by the latter. UK liked free trade at the time, as the US would later because there was no one that could compete with them.
His difficultly is the immediate actions he must take to hit inflation involve pain for his people and yet it was his Populist stance that got him elected. How he squares this will be a tremendous test of political skill and navigation.
This therefore might plummet into the trap nearly all Populists appear to fall – massive overpromising. That then can slide into authoritarianism camouflaged by further Populism. It’s a ‘fools errand’ though and Argentina trodden this path repeatedly.
He has a moment now where he has the political capital and must be honest what this is going to take and what sacrifices it means. We’ll see whether he is the real deal or just the latest whom power corrupts.