Milei’s Argentina: A tale of two pockets

Once the enthusiasm about inflation reduction subsides, Argentines will measure the Javier Milei administration depending on where in the social food chain they land. This will be measured by a simple variable: their standards of living vis-à-vis the past and their fellow countrymen.

While it has always had a strong ideological aspect, support for and opposition to Milei is increasingly becoming a class issue too. Local elections in Buenos Aires City back in May already showed a vote divided along income lines, with the southern working-class neighbourhoods voting for the Peronist candidate and the more affluent central and northern quarters for Milei’s representative.

The economic numbers are beginning to explain why. A study conducted by the Moiguer consultancy firm showed that the economic recovery is being mostly enjoyed by the higher classes, who are profiting from the inflation slowdown and the peso appreciation to buy durable goods and travel abroad like there is no tomorrow. The lower echelons of the public, on the contrary, are struggling to make ends meet because some relative prices, like utility rates, have soared and now take a larger share of the family budget.

In the first five months of the year, car sales went up 94 percent, foreign travel 80 percent and consumer goods imports 60 percent compared to last year’s data. Only in May, 1.3 million Argentines travelled abroad. But wholesale sales (mostly food) dropped 3.9 percent, supermarket sales six percent and non-alcoholic beverages 9.3 percent.

The Moiguer study puts it graphically: there is a “dollarised” Argentina doing well and a “pesofied” Argentina that is struggling. One in every two Argentines says they cannot make ends meet every month, but half of the upper-middle class buy dollars for savings every month and one in four buy goods from abroad.

This is the narrative that is slowly beginning to gain ground between the lines of the good economic numbers that the Milei administration can show off these days. The economy grew 5.8 percent year-on-year in the first quarter of the year, the INDEC national statistics bureau posted last week, and 0.8 percent sequentially – significantly below market estimates. These numbers are likely to improve slightly in the second quarter, which is high season for the country’s farming exports. But the underperformance might be the result of this eclectic consumption performance by social class.

If this divide continues to grow, so will political tensions. It will be too early to impact upon the coming midterm elections, which are only four months away. The benefits of lower inflation, even if vast sectors of the public are underwater when it comes to consumption, plus the prospects of an opposition fielding very much the same political proposals (and faces) that failed to sort out the economy and lost to Milei in 2023, should be more than enough for the ruling La Libertad Avanza party to secure victory in the October vote.

But if, as Cabinet Chief Guillermo Francos acknowledged this week, Milei will need a second term because “it is impossible to complete all the reforms he wants to achieve in only one term,” the ruling party will have to make a thin calculation about who is happy and who is angry when it comes to voting the next president in 2027. The next head of state will likely be decided in a second round run-off, which is how the Presidency has been decided in the past three outings.

Francos led this week the first meeting of the so-called “May Council,” a small gathering of representatives from Congress, provincial governments, union and business associations to start working on a set of sensitive reforms the Milei administration wants to push ahead with in the second half of his first term, hopefully with more clout in Congress than it has had up until now. The issues are sensitive: pension, labour and tax reforms. This is a package that is also part of the country’s commitments with the International Monetary Fund, whose delegation is in town these days to celebrate the government’s fiscal numbers while expressing concern about the shortage of international reserves.

This combo guarantees that Argentina will be split between two extremes, all the way to the next presidential election. And that the thin calculation between how many people travel abroad, buy cars and how many struggle to buy daily groceries will define whether Milei stays or goes after that.