Argentina's annual inflation is above 140% and is expected to hit 200% within months. Four in ten people are living in poverty. The value of the peso has collapsed by more than 90% against the US dollar in the past four years, while dollar bonds trade at less than 33% of their par value. A bewildering assortment of different exchange rates as well as complex controls on capital, prices, imports and exports have crippled investment. And public debt has soared to 90% of GDP.
In an effort to prevent collapse, the outgoing Peronist government (the left-nationalist party that has dominated Argentinian politics for decades) resorted to ever more money-printing, fuelling the inflationary spiral and putting off the day of reckoning.
The country owes $44bn to the International Monetary Fund (IMF), and the central bank is effectively in $10bn of debt (once central bank swap lines and other liabilities are deducted from its reserves).
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Javier Milei is the self-styled anarcho-capitalist and former TV pundit who was sworn in as the president of Argentina on 10 December 2023, having won the November election. Milei, a trained economist who names his dogs after famous free-market thinkers, is a radical libertarian who campaigned on a platform of sweeping economic shock therapy and privatisation, pledging to take a chainsaw to government spending to tackle Argentinas triple-digit inflation and growing poverty.
Mileis most radical ideas and controversial proposals are to shut the central bank and dollarise the Argentinian economy abolishing the national currency, the peso, and adopting the US dollar in its place, with the aim of controlling inflation and encouraging fiscal discipline. Hes promised to bring forward a massive package of reforms to the legislature.
However, Mileis Libertad Avanza (Freedom Advances) coalition is only the third-largest group in the lower house of Congress, meaning he could well struggle to get his programme through.
Hes expected to announce a drastic fiscal tightening; the removal of foreign-exchange restrictions (probably resulting in another big fall in the peso, helping competitiveness but ramping up the public debt burden); and the privatisation of state-owned enterprises.
But theres a big question mark over his core proposal of dollarisation, says The Economist. Yes, eight other countries use the US dollar as legal tender. But to do this in an orderly manner requires elaborate preparation and a large float of dollars with which to back the banking system. On both counts Argentina fails. Dollarising without sufficient dollars is like saying you want the entire population to wear Nike trainers, even though you dont make them and you dont have the resources to buy them, former IMF official Alejandro Werner told Bloomberg. Its also a big risk abandoning a national currency leaves policymakers few levers to deal with external shocks (making an internal devaluation, and a popular backlash, more likely).
Its proponents argue that the experience of other Latin American countries shows that it can work. El Salvador, Ecuador and Panama (admittedly all much smaller economies than Argentina) have all dollarised and have lower inflation and higher growth. Dollarisation would not be a panacea. But it would control high inflation and make Argentina much more attractive to investors craving stability, says Ben Ramanauskas on CapX.
And while its true that the central bank is short on dollars, the people of Argentina are not. They hold an estimated $246bn of US currency either in foreign bank accounts or stashed away somewhere safe. Getting them to deposit that money in domestic accounts would be a tough sell, but formal dollarisation would be a powerful signal that their money is safe in Argentina. However, its not yet clear whether Milei will follow through on his pledge, and there are signs of a more moderate approach.
Hes already started to tack to the centre. Media reports suggest that Demian Reidel, a veteran investment banker who worked at the central bank under Mauricio Macri, will be appointed as Mileis central bank chief in place of Emilio Ocampo, the economist behind Mileis dollarisation plan. Another Macri ally, Luis Caputo, is running Mileis economic transition team and is expected to become economy minister. Meanwhile, Milei has toned down his rhetoric and flew to Washington DC for two days of talks with White House officials, the US Treasury and the IMF.
Encouragingly, Milei does seem keen to win friends and influence people. Hell need to. Meanwhile, financial markets gave a warm welcome to Mileis election with bonds and stocks both posting strong gains on expectations that he will be heavily reliant on the support of mainstream conservatives.
Its unlikely to be a smooth ride. Macri was the sole non-Peronist president to complete a term in office (2015-2019) since the restoration of democracy in 1983, and the disturbing links of some in Mileis camp to Argentinas past dictatorship are likely to inflame tensions in an already fractious nation.
Drastic fiscal tightening of the kind Milei seeks will be much less popular among Argentine voters than it is in the bond market, notes William Jackson of Capital Economics. And Argentinas short electoral cycle means that Milei must very quickly build a national consensus, or risk a massive popular backlash as the short-term effects of his policies begin to bite. So far, Mileis lack of experience and volatile character do not suggest that he can manage this, says The Economist. If the economic situation implodes, social unrest may well follow. Yet if Argentina has become an economic casino, Mr Milei is the last roll of the dice.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Originally posted here:
Argentina's Javier Milei what are his plans and will they work? - MoneyWeek
- Opinion | 100 Days of Javier Milei - The New York Times - March 27th, 2024 [March 27th, 2024]
- Robert F. Kennedy Jr. flirts with the Libertarian nomination - POLITICO - March 27th, 2024 [March 27th, 2024]
- RFK Jr. in talks to run on the Libertarian Party ticket to ease ballot challenges - Washington Examiner - March 27th, 2024 [March 27th, 2024]
- One Hundred Days of Libertarian Populism in Argentina - The American Conservative - March 27th, 2024 [March 27th, 2024]
- Bylaws and Rules Committee and Platform Committee Survey (Part One) - Libertarian Party - March 27th, 2024 [March 27th, 2024]
- When Will the Libertarian Party Have Its Moment? - Econlib - March 27th, 2024 [March 27th, 2024]
- RFK Jr. in talks to run on the Libertarian Party ticket to ease ballot challenges - Colorado Springs Gazette - March 27th, 2024 [March 27th, 2024]
- RFK Jr. aligned with the Libertarian Party on capitalism stance - NewsNation Now - March 6th, 2024 [March 6th, 2024]
- RFK Jr. fuels talk of switching to the Libertarian Party - Fox News - March 6th, 2024 [March 6th, 2024]
- RFK JR still flirting with Libertarian Party run? Third parties seek ballot access - The Hill - March 6th, 2024 [March 6th, 2024]
- RFK Jr. sparks speculation of switch to Libertarian Party for greater ballot access - Washington Examiner - March 6th, 2024 [March 6th, 2024]
- Nate Silver: Libertarians Are the Real Liberals - Reason - March 6th, 2024 [March 6th, 2024]
- Even immigration is no free lunch - Washington Examiner - March 6th, 2024 [March 6th, 2024]
- Interview with NC Libertarian governor candidate Shannon Bray - Fox Carolina - March 6th, 2024 [March 6th, 2024]
- Libertarians Call for 'Food Freedom' in Response to Amos Miller Farm Search - Lancaster Farming - March 6th, 2024 [March 6th, 2024]
- Where Does the Term Libertarian Come From Anyway? | Jeffrey A. Tucker - Foundation for Economic Education - March 6th, 2024 [March 6th, 2024]
- Here are the 10 Libertarian candidates in the 2024 NC Presidential Primary - Fox Carolina - March 6th, 2024 [March 6th, 2024]
- 2024 Presidential Primary Information: Ballots Have Other Races, See Where to Vote - Watertown News - March 6th, 2024 [March 6th, 2024]
- Argentina's libertarian President Milei warns parliament that he will govern 'with or without' political support - Le Monde - March 6th, 2024 [March 6th, 2024]
- Madison County Introduces First-Ever Libertarian Primary on Super Tuesday - BNN Breaking - March 6th, 2024 [March 6th, 2024]
- Musician and libertarian writer who works for 'The Blaze' arrested on Jan. 6 charges - NBC News - March 6th, 2024 [March 6th, 2024]
- RFK Jr. says he didn't read Alabama IVF ruling, won't say when life begins - The Washington Post - February 26th, 2024 [February 26th, 2024]
- Argentina touts libertarian social justice to Blinken before Javier Milei visits CPAC - Washington Examiner - February 26th, 2024 [February 26th, 2024]
- Robert F. Kennedy Jr.'s Delicate Dance: Navigating Reproductive Rights and Libertarian Principles - BNN Breaking - February 26th, 2024 [February 26th, 2024]
- Javier Milei and the Spanish Tradition of Liberty - Quillette - February 26th, 2024 [February 26th, 2024]
- The Weekly Wrap: Poilievre proves hes more than a live-and-let-live libertarian - The Hub - February 26th, 2024 [February 26th, 2024]
- Why have authoritarianism and libertarianism merged? A political psychologist on 'the vulnerability of the modern self' - The Conversation - January 5th, 2024 [January 5th, 2024]
- Tucker Carlson Issues Scathing Indictment of 'Libertarian Economics' - Reason - December 20th, 2023 [December 20th, 2023]
- Tucker Carlson: "Libertarian Economics Was A Scam Perpetrated By The Beneficiaries Of The Economic System" - RealClearPolitics - December 20th, 2023 [December 20th, 2023]
- A Legacy of Resistance to Unjust Taxation - Libertarian Party - December 20th, 2023 [December 20th, 2023]
- The Croatian Invasion of the Micronation of Liberland - Reason - October 9th, 2023 [October 9th, 2023]
- As RFK Jr. Readies an Announcement Monday, Speculation Is ... - The New York Sun - October 9th, 2023 [October 9th, 2023]
- The libertarian think tank that helped build the 'No' case - The Saturday Paper - October 9th, 2023 [October 9th, 2023]
- Fox Chapel Area voters will choose among two candidates for District 3 school board seat - Yahoo News - October 9th, 2023 [October 9th, 2023]
- Far-right party may hold keys to next Polish government, sets tone in talks with Ukraine - Yahoo News - October 9th, 2023 [October 9th, 2023]
- Aella: Is Porn Too Pervasive? - Reason - October 9th, 2023 [October 9th, 2023]
- Massie: McCarthy Speakership Showdown a 'Referendum' on ... - Reason - October 9th, 2023 [October 9th, 2023]
- ESPN's Pablo Torre explains how Harvard classmate Vivek Ramaswamy was 'That Guy' in school - Yahoo News - October 9th, 2023 [October 9th, 2023]
- DeFi has not followed through on its privacy promises yet - Blockworks - October 9th, 2023 [October 9th, 2023]
- At 50, 'The Machinery of Freedom' Remains an Anarcho-Capitalist ... - Reason - October 9th, 2023 [October 9th, 2023]
- Building the World's First Private Libertarian City - Reason - July 13th, 2023 [July 13th, 2023]
- Libertarian candidates say they were not asked for money to run - Buenos Aires Herald - July 13th, 2023 [July 13th, 2023]
- David Schmidtz and My Dad on Asking the Right Questions - Econlib - July 13th, 2023 [July 13th, 2023]
- Indiana governor's race grows more crowded with addition of ... - The Statehouse File - July 13th, 2023 [July 13th, 2023]
- Revealed: The EU lobbying of the so-called 'Consumer Choice Center' - EUobserver - July 13th, 2023 [July 13th, 2023]
- Why do voters have to pick a Republican or a Democrat in the US? - kinyradio.com - July 13th, 2023 [July 13th, 2023]
- Review: Choose Your Own Adventure in 'American Futures' Book - Reason - July 13th, 2023 [July 13th, 2023]
- Twitter users slam Kamala Harris for airplane bathroom demand amid the ongoing border crisis: 'Really?' - Yahoo News - July 13th, 2023 [July 13th, 2023]
- Fundraisers revel in gutted N.J. pay-to-play law - POLITICO - July 13th, 2023 [July 13th, 2023]
- Utah Gov. Spencer Cox wants to spare kids from their phones - Salt Lake Tribune - July 13th, 2023 [July 13th, 2023]
- Kari Lake in Tucson: "I'm actually eyeing the Senate race" - KGUN 9 Tucson News - July 13th, 2023 [July 13th, 2023]
- Q&A with Gary Swing | Veteran minor party candidate advocates for ... - coloradopolitics.com - July 13th, 2023 [July 13th, 2023]
- Jonah Goldberg: A NeverTrumper's Take on the 2024 Election - Reason - July 13th, 2023 [July 13th, 2023]
- Gov. Lombardo one of few republicans to sign abortion protections ... - KTNV 13 Action News Las Vegas - June 2nd, 2023 [June 2nd, 2023]
- Review: 'Land and Liberty' Charts Henry George's Influence - Reason - June 2nd, 2023 [June 2nd, 2023]
- Polish ref cleared of wrongdoing, will take charge of Champions ... - TVP World - June 2nd, 2023 [June 2nd, 2023]
- The Taliban 20's McCarthy Red Line - Puck - June 2nd, 2023 [June 2nd, 2023]
- Morris: Property: Imagine it anew - Greenfield Daily Reporter - June 2nd, 2023 [June 2nd, 2023]
- Weekend Reading on Women's Representation: Stereotypes Can ... - Ms. Magazine - June 2nd, 2023 [June 2nd, 2023]
- Fox Business Shuts Down Kennedy, Will Replace With Kudlow Reruns - Yahoo Entertainment - June 2nd, 2023 [June 2nd, 2023]
- The 11th commandment | News | vcreporter.com - Ventura County Reporter - June 2nd, 2023 [June 2nd, 2023]
- The Long Afterlife of Libertarianism - The New Yorker - May 31st, 2023 [May 31st, 2023]
- Can McCarthy Pass the Debt Deal and Keep His Job? - The New York Times - May 31st, 2023 [May 31st, 2023]
- McCarthy-Biden Debt Limit Deal Clears First Hurdle in Key House ... - The New York Sun - May 31st, 2023 [May 31st, 2023]
- Libertarian Party of Wisconsin: Libertarians to voters: Let's go ... - WisPolitics.com - April 25th, 2023 [April 25th, 2023]
- How the pandemic challenged libertarianism | Canada's National ... - Canada's National Observer - April 25th, 2023 [April 25th, 2023]
- Colorado falls to 43rd in national highway ranking - The Durango Herald - April 25th, 2023 [April 25th, 2023]
- Are We Stuck In a Plutocratic Formal Organization? An Analysis of ... - Trincoll.edu - April 25th, 2023 [April 25th, 2023]
- Why Is Tucker Carlson Leaving Fox News? - Reason - April 25th, 2023 [April 25th, 2023]
- Despite SCOTUS Ruling Limiting Its Authority, EPA Tries To ... - Reason - April 25th, 2023 [April 25th, 2023]
- Biden's "freedom" pitch and the coming political realignment - The.Ink - April 25th, 2023 [April 25th, 2023]
- Informal dollar reaches AR$497, Fernndez and Massa blame ... - Buenos Aires Herald - April 25th, 2023 [April 25th, 2023]
- Crack-Up Capitalism by Quinn Slobodian review the economic anarchy of Liz Trusss dreams - The Guardian - April 25th, 2023 [April 25th, 2023]
- 2024 Libertarian Presidential Candidates - Who's Running in 2024? - March 2nd, 2023 [March 2nd, 2023]
- 5 things the Libertarian Party stands for | The Hill - February 18th, 2023 [February 18th, 2023]
- Most Libertarian States 2022 - worldpopulationreview.com - December 25th, 2022 [December 25th, 2022]
- Gun Ownership | Libertarian Party - December 25th, 2022 [December 25th, 2022]
- Libertarian Party | History, Beliefs, & Facts | Britannica - December 18th, 2022 [December 18th, 2022]
- The Education of a Libertarian | Cato Unbound - December 18th, 2022 [December 18th, 2022]
- WATCH: Libertarian Partys Spike Cohen Talks About Why Liberty Is ... - December 18th, 2022 [December 18th, 2022]