Paradoxically, the word that appears to define Argentina’s (and the world’s) first ultra-libertarian president is pragmatism. Initially seen as a positive characteristic allowing the economist to shake off some of the fringe characters and ideas that made up his La Libertad Avanza coalition, Milei’s pragmatism could also lead to negative outcomes if his plans don’t work out.
The economist-president was smart in creating an electoral alliance with Mauricio Macri and Patricia Bullrich, along with PRO party hardliners, and later moved strategically to show independence from the former president to avoid being portrayed as a puppet, like his predecessor. He gave Bullrich the Security and Defence Ministries, minimising Vice-President Victoria Villaruel’s power and therefore her dictatorship-denying influence, particularly over the security forces. He also sealed a deal with Luis ‘Toto’ Caputo – a leading economic figure from the Macri’s 2015-2019 administration – behind the ex-president’s back, apparently distancing himself from certain extreme measures proposed during the campaign such as dollarisation and torching the Central Bank —where the economy minister’s business partner Santiago Bausili at financial consultancy Anker Latinoamerica has taken the reins.
While Caputo had fallen into disrepute, his recycling by Milei didn’t spook the markets, or certain sectors of society and the media that appear to have already aligned themselves with Milei. As the nascent administration begins to put its “chainsaw” austerity plan in motion, society will begin to feel the pain of the extreme measures and its tolerance will be tested, as will Milei’s and his team, at the centre of which once again sits ‘Toto’ Caputo.
The Milei administration is still trying to find its footing, particularly in their communications strategy which is now formally under the control of Media Secretary Belén Stettler and, at least practically, executed by Presidential Spokesperson Manuel Adorni. The first set of economic measures were initially expected for the day after the transition but were later pushed out to Tuesday, delayed on several occasions given the need for multiple takes of the pre-recorded message.
Caputo sought to deliver a didactic message that made clear the weight of the situation left behind by the Fernández-Fernández administration (“la herencia”). He looked uncomfortable, just as he did during his previous public service posts where he avoided the media and is said to have left the government suffering from panic attacks. His decision to take the “electric chair” ministry remains bewildering. The minister announced a series of measures aimed at achieving a fiscal surplus in their first year in office including aggressive budget cuts and tax hikes. He saved some of the toughest measures for an “off-the-record” meeting with a handful of journalists, including plans to reduce spending on pensions and retirees. Perfil wasn’t included in what should be more properly defined as a “background conversation” with the official – the incoming administration has made it clear what stance it will take with the media if it offers a critical take. The second measure Caputo announced, for example, was a 100 percent reduction in official advertising for a year which represents less than 0.05 percent of the budget and is therefore much more symbolic than practical in its attempt to generate a surplus, and will wreak havoc in the media industry.
Beyond the deficient communications strategy, Caputo’s announcement represents the first time that Milei’s plans are laid out in any sort of detail beyond a declaration of intentions. While in line with the campaign promise of reducing the state’s obligations by more than five percent, the severity of the devaluation of the official peso-dollar exchange rate (120 percent taking it to 800 pesos) and the rest of the measures has set off alarms. Certain prices have risen aggressively over the last few weeks, particularly gasoline and food, indicating inflation will spike as announced by Milei. At the same time, it is becoming apparent that forcing the “caste” to absorb the totality of the austerity plan is logically contradictory, as it inevitably affects the everyday citizen which is evident in subsidy reductions and cuts in social spending. At the same time, Milei had promised he’d rather amputate his arm than raise taxes, but he’s raised export duties and the PAIS tax which pushes the value of the dollar even higher for certain transactions.
The ‘caputazo’ (as the plan is being jokingly called) replaced pure austerity with a mix of higher taxes together with spending cuts and the “dilution” of part of the deficit through high inflation. The next few months will see runaway inflation run even farther away and put intense pressure on the population, as wages and salaries fall even farther behind. Milei had warned that we would have to suffer on our way to libertarian utopia. Leftist social movements and unions are already gearing up to take the streets to protest the austerity plan, as expected, while the government has responded with Bullrich announcing an “anti-picket” strategy. It will be a hot summer in Buenos Aires.
Once again, the question of Milei’s pragmatism will be front and centre. Assuming the impact of his economic plan is as painful as it seems, the level of social conflict will likely rise dramatically. At the same time, he needs to negotiate legislative support for his ambitious reform package, which initially seems to rest on the possibility of an “anti-Peronist” front as seen in the Senate this week. How much will society accept that it voted Milei for an orthodox austerity plan that directly hits its purchasing-power? Will the charismatic libertarian be able to retain public support, or convince his voters that excruciating pain is a necessary condition for economic redemption? How long will Caputo resist this time? And if the plan doesn’t work, how much of the blame will Milei be able to pin on the financial trader?
At this point, we have many more questions than answers.
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