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 thatCaptain 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.

Still, the cases of Brazil and Peru during the 1990s show that it’s possible to control inflation on a shorter timeline. Peru’s authoritarian President Alberto Fujimori, for instance, coupled many orthodox neoliberal measures with unorthodox ones such as massively increasing the minimum wage. It remains to be seen if the doctrinaire Milei is capable of the same economic heresies. 

Likewise, Milei will need to fight the temptation of unfunded tax cuts that so often hypnotises libertarian conservatives. Much of Argentina’s current predicament is the result of the ruinous administration of Mauricio Macri (2015–2019) — now a close ally of Milei. Like Liz Truss, Macri had the original idea of passing large, unfunded tax cuts that more than doubled Argentina’s national debt and did not result in increased growth.

Many have noted that Macri and many of his allies have secured key posts in Milei’s cabinet including control of the Central Bank. It’s very possible that the president will not be able to resist calls from coalition allies (and by extension the Argentine elite) to massively cut taxes. This also assumes that the president might himself be against such a proposal.

Regardless, should Milei succeed in taming inflation, his political project favours agriculture over industry and oligarchs over workers. His broader goal of turning Argentina into the United States is the same pipe dream that Latin American conservatives have repeated ad-nauseum since Milton Friedman first visited Pinochet’s Chile in 1975. 

At best, Milei might succeed in temporarily transforming Argentina into a stabler resource colony (i.e. Chile). At worst, he will follow in the footsteps of Macri and deliver the opposition Peronists another resounding return to the Casa Rosada in 2027.