The question about whether or not the Javier Milei administration can effectively run the incredibly complex machine that is the Argentine state and if, in doing so, lead its transformation into something different is and will remain a constant matter of debate for as long as it remains in power. Even the duration of the government’s tenure is something that is cast under a shadow of doubt. Will it be short-lived and implode in the face of a social flare-up, as their political opponents believe? Or will it be a decades-long experiment of anarcho-capitalist libertarianism that will elevate Argentina back to previous eras of glory?
First off, it isn’t even clear that “knowing how the console works” is any guarantee of success in this country, with the Alberto Fernández and Cristina Fernández de Kirchner administration as a prime example. Ripe with experienced public servants with decades of experience, before collapsing under its own inefficiency and suffering a potent electoral defeat of historic proportions (for a united Peronist front), it was often unclear who was in the driver’s seat. While the revolutionary nature of Milei’s plan may seem appealing, it also shares DNA with the Mauricio Macri administration, which relied on the “best team of the past 50 years,” composed of CEOs and experts with PhDs. In the end, it was another failed experiment. It’s also not entirely clear that Milei is actually trying something new. Despite his “anti-caste” rhetoric, there is a prevalence of “the usual suspects” from Argentina’s political ecosystem among the ranks of the La Libertad Avanza government. One of the leading examples is Economy Minister Luis ‘Toto’ Caputo, one of the high-flying officials of the Macri administration and, for many, the one to blame for excessive indebtedness and for rushing to the International Monetary Fund for an emergency bailout when the going got tough.
Starting with the macroeconomy, it could be said that the Milei-Caputo plan is a hybrid one that falls between the traditional (or draconian) orthodox austerity that is associated with the IMF and mainstream economics, combined with the novelty that the president has the volition and the popular mandate to execute it. Milei beat Peronist hopeful Sergio Massa in a run-off with 56 percent of the vote, absorbing some 26 percentage points of the anti-Peronist vote previously concentrated around the Juntos por el Cambio coalition. Unlike his admired Carlos Menem (who famously noted that if he laid out his policy plan in advance of the election, he would never had won), he promised to deliver a budget surplus through aggressive belt-tightening. The caveat? He said the “political caste” would bear the brunt of the budget cuts, which let’s just say doesn’t seem to be happening at the moment.
The voracity with which Caputo achieved a fiscal surplus during the first full month of the administration was shocking. Unsustainable in time as it is, it sends a clear signal that this administration is committed to achieving its fiscal goals whatever the cost. It’s also an integral part of their anti-inflation stability plan given the need to generate confidence among economic actors that the era of monetary splurging, and therefore increasing inflationary pressures, is over.
But it is by no means guaranteed that this plan will work. While inflation did drop dramatically in February, going from 20.4 percent to 13.2 percent, the nefarious effect of the “blender” (i.e. the dilution of purchasing power) means that real wages have receded dramatically. Given the relative calm of the myriad peso-dollar exchange rates, and with a “crawling peg” set to devalue the official rate by two percent monthly, inflation measured in dollar terms is skyrocketing. The cost of basic goods and services, including petrol, bread, and rice, is now higher than in several global capitals such as Rome or Washington, leading some to suggest, “it’s cheaper to live in Paris.” While a bit exaggerated, this does explain a situation in which wages are being obliterated in real terms as the peso-dollar exchange rate remains contained. “Argentina doesn’t work with high real prices,” financial analyst Carlos Maslaton told Perfil. “It happened in 1981, 2000, 1998 and 2017, it doesn’t work and afterwards we see a crash, which is why we need an immediate solution.”
While the general macroeconomic direction appears deliberate, with the president congratulating his minister on the job, it may be getting out of hand. ‘Toto’ even told businessmen in the food and supermarket sectors that price hikes had gotten out of hand – a rare “government intrusion” in an administration that champions free markets. As the economy marches on at this recessionary rate, will society tolerate the crunch it is experiencing? Having burnt through their meagre dollar-denominated savings, at what point do citizens start taking to the streets (as they have done for every non-Peronist administration)? Downtown Buenos Aires is ominously quiet in terms of protests these days, but that may not last for long.
Milei understands that he needs to deliver slowing inflation and the beginning of an economic rebound if he is to have a chance at truly governing the country. With the budget surplus as his true, and only, North Star, he seems to be trying to stretch time in political terms by “battling” the “caste.” Thus, he took on a moderate approach in the early days of his administration only to “slap” the political class in the face with this infamous DNU emergency decree and Omnibus bill. After a month of negotiations that led to some sort of consensus, he pulled the bill while he insulted governors and legislators, suggesting he would govern by decree. After he mistakenly raised his own salary together with employees of the national administration, he fired his Labour Secretary and got carried away with a Twitter fight with Cristina Fernández de Kirchner. In an attempt to look tough on crime, Security Minister Patricia Bullrich released a picture of drug-traffickers being rounded up in prison, “Bukele-style.” A flare up of violence in Rosario proved that despite the apparent strength of messages sent via Twitter, the narcos still controlled the streets.
A politically weak administration from the start, Milei’s government plan seems to be tied to the idea of generating distractions in order to buy time and hammer down inflation. Whether because of his coalition’s absolute minority position in both Chambers of Congress, or because he truly despises the “caste,” he’s had a hard time governing through traditional means. Congress is gridlocked and his relationship with provincial governors is absolutely decimated. His proposed “May Pact” could truly be a genuine attempt to build consensus, or another smoke bomb designed to buy more time. Yet, while Milei is truly formidable in terms of “synthetic” power, people only have a certain level of tolerance for economic ruin. Memes don’t put food on the table for most people.
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