Be my market valentine, Milei

Happy Saint Valentine’s Day for Javier Milei. The President is enjoying a new chapter of his romance with international markets and investor interest is rising. In the main part, it results from his midterm election victory – which was unexpected in size – but not exclusively: observers are seeing a more pragmatic government, both in terms of economic policy and political management. Argentina’s Central Bank is consistently buying reserves and government political operatives are getting things done in Congress by force of negotiation. In other words, exactly what everybody was asking Milei to do previously.

There are still unforced errors. The brutish intervention in the INDEC national statistics bureau over an obscure methodology that would have changed very little in the long term is testimony to the way the government’s decision-making works: Milei makes the calls with little to no internal or institutional resistance. Only his sister, Presidential Chief-of-Staff Karina Milei (if only partially) can talk him around and manage his troubled personality.

Like most Latin American countries, Argentina is a low-functioning democracy. Part of the country’s economic woes is structurally related to that. The Central Bank, for example, is autonomous according to its charter and the Executive appoints its chairman with senatorial confirmation. But this latter step is most often ignored and the institution’s current chief, Santiago Bausili, is nothing but a sidekick to Economy Minister Luis Caputo. The result of this approach, in the long term, is that high inflation has been for decades the norm rather than the exception.

Milei campaigned on closing the Central Bank but has instead made it an appendix of his economic agenda. That leads to mistakes – INDEC was also an error: the short-term goal of trying to show a lower number now leads to a crack in credibility in the longer haul, which will sooner or later impact the entire government’s credibility. Doubtful? Ask Cristina Fernandez de Kirchner.

Despite the honeymoon, Milei does not have the luxury of making too many mistakes. The strengths and weaknesses of his economic programme are out in the open for all to see. Among the former, stability and lower inflation. The 2.9 percent January number is, of course, bad news, but coming from the 200 percent annual stat when Milei took office, even the difference between 25 percent and 40 percent would be imperceptible for the broader public.

The weaknesses are also clear. Stability comes at the cost of incipient economic stagnation in most of the economy, lower incomes, and job losses – plus more precarious jobs. Since Milei took office, some 180,000 people have lost private-sector registered jobs. This is still not massive in a workforce of over six million, but Milei and Caputo should watch this trajectory for the sake of the political sustainability of their programme.

This is exactly the line that the International Monetary Fund delegation visiting Argentina heard from several interlocutors in recent days. The IMF delegation agrees: Milei risks being carried away by ideology, opening the economy too much and too fast, over-appreciating the peso (again) and leaving too many sectors hurt at home. The IMF staffers know the world well, understand current trends against free trade (starting from the White House) and that a principled policy can be laudable but naïve in a world of fierce and often unfair competition for markets. These staffers, however, only write internal reports: decision-making happens somewhere else.

This agenda will be increasingly important and may carry significant political weight if the Peronist opposition gradually gets around to sorting out its leadership. Buenos Aires Province Governor Axel Kicillof has been confirmed as head of the region’s branch of the party. Replacing Máximo Kirchner – who correctly decided he did not have the strength to put up a fight – it is another step by Kicillof to distance himself from the Kirchners and walk toward the presidential nomination next year. Kicillof and Fernandez de Kirchner are barely on speaking terms; Máximo is very little without his mother’s push.

Kicillof still has a way to go toward achieving anything close to national leadership and the Peronist party is at its weakest moment since the return of democracy in 1983 – only five governors and the smallest representation ever in the Senate. But the greater the prospects of an opposition united around a narrative of employment and wages, the more pressure will build Milei to deliver, make fewer errors and, in a strange way, be less Milei than he would like to be.