The brand-new year will come as a grief to hundreds of thousands of Argentinians. If the current economic calculations are anything to go by, millions of Argentinians will join the ranks of country’s ever-growing number of people living below the poverty line. Currently the number of Argentinians living below this mark is staggering 40% of the country’s total population. That number is likely to grow exponentially, under the country’s nonconformist president Javier Milei’s radical economic restructuring programme.
For decades now, Argentina has been battling unprecedented inflation. Some basic products have seen a price rise by around 150%. Its foreign exchange reserve is fast depleting. In the month of October 2023, it had mere US$18bn, compared with US$21.4bn the previous month. According to conservative estimates, if this trend continues, Argentina will have no foreign exchange reserve by mid-2024. Javier Milei is under no illusion that his task to revamp the state of the nation’s economic affairs will be “extremely difficult and unusually distasteful.” He, however, appears unperturbed of the enormity of the challenge ahead. Indeed, Milei is on a mission to reverse decades of economic mismanagement.
Cleaning up the mess
For good or bad, President Milei has decided to revamp the country’s proverbial “Augean stable”. Since taking office little over three weeks ago, the country’s new political strongman has introduced an array of unprecedented economic reorganization. Following a landslide election victory, Milei has already initiated deep spending cuts. His reform programme has devalued the country’s currency by 50%, cut transport and energy subsidies, made redundant 5,000 recently hired state employees and proposed repealing or modifying about 300 laws.
This policy shift, while it may have its benefits, can prove catastrophic to millions of Argentinians living in grinding poverty. Unsurprisingly, plenty of Argentinians are incensed by these sudden and unimaginable economic reforms. There have been a deluge of citizens pouring onto the country’s streets, protesting against the austerity measures that is going to rob them of their basic livelihood, such as right to live, eat and access to healthcare.
Those Argentinians who rally around their brand-new no-nonsense president, however share his views that a radical economic reform is a must. To put things in perspective, until the election of Milei, Argentinians had been voting parties and persons into power for specific economic purposes i.e., to put band-aid on an economy on permanent life-support. If they voted for Milei, it is for the simple fact that they want an alternative therapy for the economy. Milei came to power promising he will do the undoable. Majority of his countrymen and women affirmed their faith in this course correction. If Milei is being true to his words, one can hardly fault him for staying true to his promise.
Even among his detractors there is a grudging acceptance that what Milei is trying to do as part of root and branch surgery is an “unpleasant task” that has long called for attention. Thus, while they are sceptical of his social reforms, they are nonetheless grudgingly sympathetic to his economic reforms.
The shock remedy
To return to the larger question – can the Argentinian system benefit from the economic shock therapy? A self-described anarcho-capitalist who has long railed against the country’s “political caste,” Milei seeks to revamp the economy and the political culture of Argentina through seismic changes is anchored on a specific economic policy undertaking called “shock therapy”.
Those economists working on the idea of shock therapy are of the opinion that inflation is the product of irresponsible government spending. Irresponsible governments with short -term political interests beg, borrow and steal money to finance national budget just to stay in power or promote a specific national ideology. Argentina has been in this economic mode for decades. For years, it has been generating less income and spending more. It had been borrowing more and repaying less and less. Put simply, it was caught in a vicious circle of economic mismanagement from which there was no escape route.
When countries find themselves in such situations, they either continue digging deeper – thereby commit themselves to complete economic ruin (as was the case with Zimbabwe under Mugabe) or undertake severe economic reforms as part of the shock therapy. In the contemporary economic parlance, Greece undertook this reform programme much to the anguish and misery of millions of Greeks. But the country appears to have turnaround its once insolvency condition by embracing austere economic policies as part of shock therapy.
To the proponents of economic “shock therapy”, it works, because such fast-paced reform, only induces short-term debilitating effect over long-term permanent damage, if left unchecked. Such measures, in their view, force the system to adapt and embrace the change quickly. But, if the system continues to undertake gradual and slow-paced reform or continues with more of the same, it is likely to contribute to the death of the overall economy.
While he confronts a mutinous crowd at home, Milei is being praised abroad for his decisive and courageous austerity undertaking. The International Monetary Fund (IMF) – to which Argentina owes some $44bn in unpaid debts – has called Milei’s measures “bold” and said they would help create the environment for private sector growth.
Doing away the dissent
As one would expect, not everyone is happy with the nature and pace of these reforms Milei, however, has no patience with those who find his fiscal reforms unacceptable.
He has a rather unique approach to addressing these challenges. Apart from
radical programmes to overhaul the South American nation’s ailing economy that has already seen mass redundancy in the government sector, cutting down of public spending, privatisation of loss-making industries and institutions, he is also making Argentinians pay for their dissent against his fiscal reforms. The costs of public protests, in other words, will now be borne by the protesters, however non-violent and peaceful they may be in their protests.
In late-December when scores of demonstrators took to the streets of the capital Buenos Aires to oppose his draconian economic policies, Milei slapped a bill on the protesters. According to one of his spokespersons, “security costs for the demonstration reached 60m pesos ($73,000).” Following this Milei’s government has initiated the process whereby the dozen or so social organisation that organised this protest will have to pay for the security costs for the protests – in which police were deployed in large numbers – covering fuel consumption and “average man hours. According to a statement made by Milei’s security minister, Patricia Bullrich, “The state is not going to pay for the use of the security forces; organizations that have legal status will have to pay or individuals will have to bear the cost.”
So far, opposition to Milei’s root-and-branch economic reform, through what he describes as revolutionary means, has met with muted opposition. As Gerardo Martinez, general secretary of Argentina’s construction workers’ union put it: “We do not question the president’s legitimacy … but we want a president who respects the division of powers, who understands that workers have the need to defend themselves individually and within the framework of justice when there is unconstitutionality.” Given that Milei’s whole election promise was to do away with the mases taking the state to daily ransom, those who find Milei’s methods unconstitutional will have few takers. It would seem Milei is walking the talk and practicing the dictum “every penny counts”, while he seeks to oversee his vision.
So, how do Argentinians react to these seismic changes in their everyday lives brought upon by Mile’s double whammy austerity programme? When he delivered his inaugural address as president of Argentina some three weeks back, Milei didn’t mince his words. “There is no money,” he told his fellow citizens in a grave voice. “There is no alternative to tightening our belt. There is no alternative to a shock.” Milei further went on to stress: “Of course, this will hurt the level of activity, employment, real wages, on the number of poor and destitute people. There will be stagflation, it is true, but it will not be very different from what has happened in the last 12 years.”
You don’t get many contemporary politicians build in this mould. The brutal truth surrounding this admission is likely to sober even Milei’s harshest critics both within and outside this once prosperous nation. Used to a cycle of perpetual destitution for decades, due to years of economic mismanagement by Milei’s predecessors, the majority of Argentinians would accept these state of affairs as something of a fait accompli.
Although they cringed and cried, while referring to lack of economic development and high inflation in the country, for decades, a sizeable number of Argentinians had been beneficiaries of a system that allowed them to live off the state, either through heavy subsidies provided by the system or by being in employment by the state in its various loss-making industries and agencies. It is that section of the citizenry long used to skim off the system that will shed the largest tears this new year.
[Header image: The Central Bank of Argentina, by Diana, 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. The views and opinions expressed in this article are those of the author.