Wednesday, July 24, 2024

OPINION AND ANALYSIS | 22-06-2024 05:01

Milei’s future: back to the past?

While it is crucial for the government to attract investments from various sources, the nature of the country’s insertion in the global economy will depend on Milei’s alliances.

President Javier Milei believes Argentina’s future lies in the past — not just any past, but specifically the latter half of the 19th century up until the turn of the 20th century. He argues that this was the period when Argentina was a world power, and it is to this era he aspires to return the nation.

The ruling party’s RIGI scheme, or Régimen de Incentivos para Grandes Inversiones (“Major Investments Incentives Regime”), is his signature legislation designed to realise this vision. It offers extraordinary benefits to investors, particularly targeting foreign capital aimed at the country’s natural and strategic resources. As passed by the Senate, RIGI would apply to sectors including agriculture, forestry, infrastructure, mining, energy, tourism, oil and gas, technology, and steel.

This economic framework is somewhat more complex than Argentina’s 19th-century model, which relied heavily on a geopolitical alliance with Great Britain focused on beef, wheat, and corn. The infrastructure, particularly the railway system financed by the British, was designed to transport products from the interior to the port of Buenos Aires for export, following a hub-and-spoke model with the capital as the central hub in an export-oriented economy. (The Buenos Aires Herald, a precursor of sorts to the Buenos Aires Times, was founded in 1876 to provide shipping news.)

Today’s geopolitical landscape is different, and President Milei’s foreign policy remains somewhat ambiguous, often swayed by his ideological preferences rather than national interests. However, reality sometimes tempers his stance, such as his eventual agreement to engage with Beijing despite his initial refusal to trade with any type of Communists, prompted by the Central Bank’s desperate need to renew a currency swap to protect its scant reserves. Brazil’s President Luiz Inácio Lula Da Silva has not been as fortunate.

While it is crucial for the government to attract investments from various sources, the nature of the country’s insertion in the global economy will depend on these alliances. During the golden years Milei aims to recreate, Argentina primarily exported commodities and imported manufactured goods, a model suitable for a population of less than five million at the turn of the 19th century. Could this model sustain a nation with over 50 million people?

One argument in favour is that 19th-century Argentina relied solely on agriculture, whereas now there are additional growth drivers, given the global demand for oil, gas, copper, and lithium. Another favourable argument is that the country could finally become more federal. According to the 1994 Constitution, provinces own their natural resources and thus benefit most from their development. The 1852 Constitution drafted by Milei’s hero Juan Bautista Alberdi was more ambiguous on this issue.

This federal aspect is significant – the RIGI chapter of the ‘Ley de Bases’ bill passed with a majority of 38 to 32, compared to the overall vote, which ended in a 36-36 tie and was settled by Vice-President Victoria Villarruel. The swing votes came from three Peronist senators from the provinces Catamarca, Tucumán, and Jujuy. Beyond party lines, many regions are aligning according to their specific interests: Patagonian governors and senators promote the oil and gas agenda, while their northwestern counterparts focus on mining. Optimistic projections place potential investments at US$100 billion over the next decade, with even a more conservative estimate promising to change the country’s economic equation.

Milei’s long-term bet is that this economic programme will eventually lead to a significant shift in the country’s politics. The entire history of 20th-century Argentine politics is a struggle to transform the extractive economy of the previous century into a more industrialised, middle-class society, leveraging the influx of European immigrants. This was the mission of the political entities Milei now dubs “the caste”: the Unión Cívica Radical (UCR) in the early 1900s, the Peronists in the 1940s, and the developmentalist programme of the 1960s, which sought but failed to merge both traditions.

This developmentalist programme of import substitution peaked in the early 1970s. Since then, Argentina’s economy has experienced a structural decline, failing to integrate into the global economy sustainably, with politics oscillating in a zero-sum game. The consequences have included two hyperinflations (1989-1990), a massive debt default (2001), several brutal devaluations, and recently an annual inflation nearing 300 percent. These precedents have paved the way for Milei, the first economist to become president of Argentina. Now, easier said than done, he faces the challenge of delivering on his promise.

Marcelo J. Garcia

Marcelo J. Garcia

Political analyst and Director for the Americas for the Horizon Engage political risk consultancy firm.


More in (in spanish)