Javier Milei had another week of fury. After penning an article defending his economic path and policies, he decided to raise the volume and go after one of his former heroes: Domingo Cavallo.
The controversial economist had, until very recently, been considered the best economy minister in Argentina’s history by President Milei. Cavallo was responsible for a decade of exchange rate stability during the convertibility era. He has always been a divisive figure in domestic politics, particularly after his break with then-president Carlos Menem during the 1990s, his posterior participation in the Fernando De la Rúa administration which ended in one of the worst economic crises of the country and his failed presidential bid, during whichhe infamously called his opponents “impotents.”
Yet for supposed liberals like Miliei, Cavallo is the stuff of legend: a Harvard PhD graduate who pursued aggressively orthodox economic policy during the heyday of neoliberalism and managed to stabilise Argentina’s economy and make it one of the global darlings of growth. For Milei to go to war with one of his mentors, which resulted in the firing of his daughter Sonia Cavallo from his administration — she was Argentina’s Ambassador to the Organisation of American States — is a demonstration of the level of sensibility the first self-perceived “anarcho-capitalist” President of Argentina has when it comes to his economic policy. Cavallo quickly went from being a champion in his eyes to a person who shouldn’t even show himself in public (he called him an “impresentable” in Spanish).
Rather than picking up the glove, Cavallo took to social media to note he had supported Milei during his presidential bid. At the centre of the debate are several key issues being raised by mainstream economists, most of them close to orthodox ideologies, regarding the weaknesses of the economic plan drawn up by President Milei and current Economy Minister Luis Caputo. While they have been successful in taming inflation, which was certainly the biggest problem the Argentine economy faced, they relied on certain policy tools that are questionable for those who “espouse the ideas of freedom.” The main criticism is that Argentina’s peso is artificially overvalued, generating macroeconomic disruptions that will eventually force a devaluation, which would then in turn reignite inflation via pass-through effects. Closely related is the use (and future removal) of currency controls, the infamous “cepo,” which limits the Central Bank’s capacity to accumulate reserves while incentivising the egress of US dollars via cheap imports and a favourable exchange rate for Argentine tourists abroad.
There are many ways to analyse the situation from a technical perspective, but there’s something else at play here as well. Milei and Caputo, have concocted an economic policy path that is fraught with risk, though to be fair there’s probably no alternative that isn’t. They have proven to be drastically pragmatic, pursuing a strong peso strategy that is the opposite of what Milei promised during the campaign, when he said the peso was “excrement.” In doing so, they’ve taken a page from former Federal Reserve chair Ben Bernanke, who utilised his communications strategy in order to implement monetary policy during the years of “quantitative easing.” Essentially Bernanke realised that he could influence the markets’ expectations not just through setting the interest rate, but also by telling the public through press conferences and interviews what he intended to do. In Milei and Caputo’s case, the market has doubts as to whether they can sustain what is clearly a super strong peso, forcing them to come out publicly to defend their policy choice. The level of aggression with which they have defended their positions suggests that the risks to their strategy are real – or at least the perceived risks.
At the same time, the fact that Milei is willing to break with such an influential figure within the liberal space is an indication of how he behaves politically. It is increasingly clear that the Milei administration – with presidential chief-of-staff, sister Karina Milei, in charge – is willing to dispose of anyone who doesn’t fully align themselves with the cause. Recently, the President said his sister controls the “guillotine,” meaning that she has become the political commissar of the libertarian cause, chopping heads at any corner in order to ideologically and politically cleanse the movement. Moving beyond the internal boundaries, the libertarians have picked public enemies throughout the socio-political field. Amongst the economic profession, the President has picked battles with most mainstream economists, calling them “swindlers” and then releasing hordes of digital trolls to try and humiliate them. Cavallo, up until now, had escaped from the fate suffered by other colleagues including Carlos Melconian, Ricardo López Murphy, and Roberto Cachanosky, to name a few.
Absolute intolerance to criticism, together with a need that the pack follows the leader, are defining characteristics of the La Libertad Avanza coalition. There are certain authoritarian scents emanating from the Casa Rosada which respond both to a modus operandi and personality traits. The strategy has been effective thus far, allowing the Milei administration to force the support of Mauricio Macri’s PRO party, parts of the Unión Civica Radical (UCR) and moderate Peronists in order to pass key legislation. It’s also generated some level of self-censorship, both among politicians and journalists, allowing the administration to control the agenda. While it is generating resentment among potential allies of the Milei government, at some point it may have a negative effect – if and when the opposition decides to confront and manages to do so effectively.
Until then, Cavallo and the rest of the former allies of the government will probably content themselves with trying to avoid the President’s wrath. The risks of facing off with the government are higher than the expected returns, which aligns the socio-political field behind the strong leadership of Milei. The expectation is that La Libertad Avanza will have a solid performance in upcoming midterm elections, which will probably increase and exacerbate these authoritarian features. It’s only getting started.
Comments