Argentina has come of age. For over a quarter-of-a-century it had remained hostage to left-wing protectionist politics. Nothing wrong being true to one specific political ideology, one might quip. It becomes a burden, however, if the said political ideology does not deliver. During the high noon of this specific ideology, the country’s economy went into a free fall. Once the richest country in Latin America, Argentina’s economy is in shambles after years of economic mismanagement by populist left-leaning politicians. Here is a snapshot of that dire state-of-affairs. Currently, Argentina is experiencing an inflation of over 143 percent. And, every two in five Argentinians is living in poverty: i.e., some 40 percent of the total population.
For decades Argentinians had come to accept this ignominy as a given. Thanks to the victory of Javier Milei, a far right, anti-establishment politician as the new Argentinian president, the country’s imprisonment to an eternal Sisyphean grind of economic doom is likely to change – or so it seems. Javier Milei, the architect of a political tsunami in Latin America’s third largest economy, is scheduled to be sworn in as the next president of Argentina on Dec. 10, 2023.
Milei, the messiah of the moment has been variously described as a maverick, populist, “anarcho-capitalist”, anti-left – to name a few appendages- has some radical ideas to turn things around in the country. His surprise win in the presidential race would seem to testify that plenty of Argentinians think his proposed “radical surgery” of the economy and general politics in the country may be the right way forward.
It’s the economy stupid!
What does Milei intend to do? One of the mortal issues affecting Argentina is the country’s hapless economy in permanent life-support. One of the shock election promises of Milei, a former economist by profession, was to replace the country’s national currency the comatose Peso with the green U.S. Dollar. Nothing unusual in this undertaking. Many ailing economies have in the past tried to follow this method to stabilise their troubled finances. In the case of Argentina, however, this is easier said than done. There are insurmountable hurdles to Milei’s proposal. And, Argentinians might have been too quick to embrace his supposed panacea.
Let’s find out why this revolutionary idea may not take off. First, any kind of Argentinian Peso-U.S. Dollar swap would require anywhere between US$35bn-US$50bn. The country simply does not have that amount of hard foreign currency reserve to see this undertaking through. Second, killing hyper-inflation in the country through currency swap in the country by disbanding the Central Bank would require a constitutional amendment. While Milei’s Libertad Avanza (Freedom Advances) movement might have come to power through the promise of an overhaul of the country’s stale politics, but they simply do not have the required numbers in the parliament’s Chamber of Deputies to see this amendment through.
Such drastic currency swap will also expose Argentina economy to external economic environment. In this stance, U.S. Federal Reserve would call all the shots in terms of interest rates and other internal fiscal policies. This would prove to be a hard pill to swallow, given fierce autonomy oriented Argentinian mindset. The nagging question is: can Argentinian’s forego their economic sovereignty to a third country? Moreover, even if there is a currency swap, Milei would find himself hamstrung by the stipulations of U.S. Federal Reserve in domestic policy undertakings. The possible scenario might be likened to shooting oneself in the foot.
A “no-bars-hold” showman, during his campaign trail, Milei was often found brandishing a chainsaw in the stage – to hammer home the message of extreme public spending cuts. To see this objective through he has proposed cutting welfare payments and drastically slashing the country’s bureaucracy – including closing down ministries of health, education, women, and culture among others. Next, he plans to privatise everything in the state. As he put it: “everything than can be [put] into the hands of the private sector, will be in the hands of the private sector.” While some such “shock therapy” may be beneficial, such reverse policy undertaking in a state where masses have been dependent on state subsidies for their very survival might not prove palatable.
Perhaps Milei is not the madman or “El Loco” as his critics in Argentina call him.
To cushion himself against any future backlash and to temper voter expectations of his grandiose economic reform, Milei has gone on record saying, “the shock adjustment would take up to two years to bring down hyperinflation”. But as they say, a week is a long time in politics. Milei has bought himself a good 104 weeks to renege on his promises.
[Photo by Javier Milei, via Wikimedia Commons]
Amalendu Misra is a professor of international politics, Lancaster University, United Kingdom and author of Towards a Philosophy of Narco Violence in Mexico. He’s on Twitter @MisraAmalendu. Opinions expressed in this article are those of the author.