President Javier Milei was not lukewarm in his year-end message to Argentines, delivered on social media: “Happy times are coming.”
The president feels confident after a better-than-expected 2024, in which he managed to lower inflation, keep an opposition-controlled Congress in check and overall govern Argentina at his will. He benefits from lower expectations at the start – nobody gave him much credit, being a total outsider with no experience in managing anything but his own televised public appearances and who only promised “chainsaw” sacrifice.
Now Milei is telling Argentines that the worst is behind and the best is yet to come. From the point of view of political communications, this is a dangerous move, given that the country will go to the polls in October for the midterm elections. But the Casa Rosada feels confident that economic stability – i.e., lower inflation – will be enough to cruise to a commanding victory.
October may feel too distant or too close, depending on how you focus the coming months. In his message, Milei noted that the recession is over and that the country is already growing. Both ring true. The economy grew 3.9 percent sequentially in the third quarter of the year (despite falling 2.1 percent year-on-year), the INDEC statistics bureau reported in mid-December, ending three consecutive quarters of decline. If not technically over yet, the recession has at least paused.
Meanwhile, some government projections point to a sharp decline in poverty in the second half of 2024, which would bring the figure to around 40 percent, close to where the Alberto Fernández administration left it and almost 15 percentage points below the peak where Milei’s initial devaluation in December, 2023 took it.
Much of this success hinges on the Pax at the exchange rate market. Prices in Argentina dance to the tune of one price: that of the US dollar. On January 1, 2024, a greenback at the “blue” parallel market was worth 1,025 pesos. A year later, it is worth 1,230 pesos. This slender 20 percent increase contrasts with inflation of 112 percent for the year (pending the official December figure, expected out in a couple of weeks). This means that inflation in US dollars in Argentina was almost 80 percent in 2024.
The government argues that a stronger peso shows a more robust economy. That would, of course, be true if the fundamentals were right. For six consecutive months, more US dollars have left the country than have entered: the Central Bank reported a negative foreign exchange balance of US$911 million in November and a total of US$6.1 billion since June.
If Milei and Economy Minister Luis Caputo get the hard currency to finance this black hole, everything will be okay. Argentines recently declared US$ 32 billion to tax authorities under the “blanqueo” tax amnesty – US$ 22 billion in cash, now mostly stashed in banks. But the country has plenty of past tales about dollar outflows that at first seem financeable until – overnight – they are not anymore.
That is why the administration’s first and almost exclusive task this Southern Hemisphere summer will be to discuss new terms with the IMF. The agreement the country signed in March, 2022 finished as Argentines were raising their glasses in celebration on December 31 but the last two quarterly revisions by Fund staff are still pending. Of the two main policy targets established by the 2022 understanding, the Milei administration overshot the fiscal goal but badly missed the reserves accumulation goal.
In the diplomatic language of the IMF, negotiations with Argentina are “underway.” Milei needs the agreement to happen at the latest by April to build a bridge of economic calm through the October midterms. Timing is not the only key variable: content also matters. With a healthy fiscal picture – if the government sticks to its unwavering promise of fiscal surplus – Milei will want the IMF, following a political call from the Treasury Department once Donald Trump takes office later this month, to send some extra cash. How much? Around US$10 billion would make him happy.
If that happened, the president might even enjoy for a while his recent prediction that he would become “a herald of good news.” But Argentina, as everybody knows by now, has a knack for generating black swans and the Milei era will not be an exception. May we live in interesting times.
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