Given that Donald Trump will be inaugurated president of the United States on Monday (with President Javier Milei an enthusiastic onlooker in Washington) just four days after a ceasefire ended 15 months of Gaza strife, the world will be looking a different place at the other end of this weekend than today. While there are more differences between Milei and Trump than meet the eye, here is one giving food for thought – while Trump has his election behind him with his inauguration lying just ahead, Milei’s inauguration is now two calendar years in the past whereas October’s midterms are already causing electoral strategy to compete with a hitherto exclusively economic agenda.
These two fronts dovetail into one according to the one-track presidential mind – slaying the inflationary dragon is both the cornerstone of economic policy and the key to electoral success. So obsessed is Milei with keeping inflation on a downward path that, having pledged to halve crawling peg devaluation should December inflation fall below 2.5 percent, he went ahead and did it anyway after INDEC national statistics bureau posted 2.7 percent last Tuesday. This stems from Milei being mindful that the risky strategy of currency appreciation (always ending in crisis in the past) was a central pillar of the unexpectedly rapid progress against inflation – even if the one-off injection of US$32 billion from the tax whitewash should never be underestimated as contributing to an idyllic spring.
Yet it is not quite so simple – the sequence between lower inflation and electoral triumph is not so linear. In economic terms, currency appreciation is eventually bad news for the balance of payments and productive sectors alike. The latter probably carries the heavier electoral impact. Cheaper imports (where a free trade agreement with the United States is as high on Milei’s “to-do list” for Trump as cajoling the International Monetary Fund) will tear holes in the productive fabric with the worst damage inflicted on the least competitive – a category into which most of the Greater Buenos Aires industrial belt and the labour-intensive PyMe small and medium-sized firms creating half the jobs enter once protectionism is relaxed. And the more successful Milei is against inflation, the more traumatic the challenges of becoming competitive will become for such sectors, sending them to the wall.
This process might even be hailed by Milei and other libertarians as Argentina finally making decisive progress towards modernisation by eliminating deadwood but in more immediate and electoral terms it complicates matters. This is because the hitherto pampered Buenos Aires Province taking the brunt of austerity is widely seen as the key to these midterms. This logic is not necessarily correct – thus Milei lost in Buenos Aires Province even in his run-off landslide but celebrated a monumental win (just as Trump lost both California and New York, perhaps the two states which most represent the USA abroad, yet still won comfortably enough) while no less than 92 of the 127 seats and all 24 Senate seats at stake in October lie outside the country’s most-populous district – but it is what nine out of every 10 pundits will tell you. It would be entirely logical for Buenos Aires Province to resist a modernisation at its expense and in that event, Milei could notch a huge victory nationwide on the back of defeating inflation but if Kirchnerism triumphs in BA Province, it will be viewed as the main alternative or even the winner and overseas investors will continue to hold back.
The Greater Buenos Aires urban sprawl is not the only problem for the government in this key province – in the hinterland farmers are hurting, squeezed between lower global commodity prices and higher costs from a 2024 ending with 117.8 percent inflation, amid incipient drought. It is generally assumed that the rural vote in an election polarised between Milei and Kirchnerism would be a no-brainer but farmers are deeply resentful of the insistence on upholding export duties in the name of fiscal surplus and might well end up voting PRO, just as they did in 2023. Which begs the question of where that centre-right party is heading in its confused relationship with the ruling libertarians (as highlighted by Tres de Febrero Mayor Diego Valenzuela’s defection to La Libertad Avanza last Thursday). A question perhaps best left to a future editorial with a clearer panorama.
But long beforehand Trump will be inaugurated US president the day after tomorrow – all eyes should turn to Washington.
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