Monday, April 22, 2024

OPINION AND ANALYSIS | 30-03-2024 06:07

The calm before the storm?

The depth and severity of the recession that the plan put together by Economy Minister Luis ‘Toto’ Caputo will bring is beginning to reveal its impact.

If Javier Milei’s electoral victory wasn’t enough to shock Argentina’s socio-economic and political ecosystem, then the passive reaction of a majority of the population to his chainsaw austerity plan is completely out of the norm. 

Approaching the end of the first quarter and with more than a month of life in Argentina in full swing, it is difficult to comprehend how society is tolerating a situation of extreme economic contraction in such a short period of time. At the same time, it’s surprising that Milei, an outsider revered by his followers as a sort of messiah destined to drag the nation out of its current path of mediocrity, maintains extremely elevated public opinion figures in a context of absolute political gridlock and confrontation. For years we were led to believe that “la grieta,” our very own unique brand of polarisation, was one of the leading causes of our political and economic decadence, and that the population was tired of petty bickering between politicians. And that engaging in extreme budget cuts was socially and politically suicidal for a leader. 

Milei, a self-proclaimed “anarcho-capitalist” with no political experience or structure, appears to have upended our traditional beliefs surrounding Argentine politics and its relationship with society, being able to “walk on water” in a way that none of his predecessors had been able to in the past. That is, unless we are in the calm before the storm.

Counterintuitively, president Milei overpromises the depth of his chainsaw austerity without suffering political backlash. Giving the keynote speech at the America’s International Forum held at the Four Seasons hotel in the swanky Buenos Aires neighbourhood of Recoleta this week, the ultra-libertarian economist announced 70,000 job cuts in government posts. The following day he was seemingly contradicted by official spokesperson Manuel Adorni, who spoke of 15,000 layoffs and said that a total of 70,000 jobs were being analysed. The issue of the week, in the days before an extended long-weekend given Easter and Malvinas holidays, were the job cuts in the different government agencies. 

According to Perfil’s Julian D’Imperio, union leaders expected somewhere between 15,000 and 20,000 layoffs in coming days. He listed 1,200 jobs cuts at ANSES social security agency, 670 at the National Meteorology Service, 600 at local branches of government organisations, 40 at the State Assets Agency, 165 at the ANDIS agency for the disabled, 170 at INCAA film institute, 200 at water utility AySA, 26 at the Human Rights Secretariat, 50 at telecommunications regulator Enacom, and another 50 at CONICET scientific research institute. Some unions estimate some 7,000 people had already been notified. Despite some smaller protests, the streets of Buenos Aires remained calm.

The depth and severity of the recession that the plan put together by Economy Minister Luis ‘Toto’ Caputo will bring is beginning to reveal its impact. According to data from the INDEC national statistics bureau, economic activity fell 1.2 percent in January over December, and 4.3 percent compared to 2023. Construction activity fell like a piano, contracting 16.9 percent, while manufacturing dropped 11.3 percent, and commerce fell 8.2 percent. 

According to the Social Debt Observatory of the Catholic University of Argentina (UCA), Argentina’s poverty rose to 57 percent of the population in January, encompassing 27 million people. Extreme poverty stood at 14.2 percent of the population by December, according to their figures. 

“That 14 percent figure marks a chronic and structural situation that is tough to swallow,” explained the Social Debt Observatory’s director Agustín Salvia in an interview on Modo Fontevecchia, “it triples the figures from 2011 and implies deterioration in welfare.”

This situation, of course, isn’t new. At least since 2011, during Cristina Fernández de Kirchner’s second Presidency, Argentina’s economic cycle took a steep turn in the negative direction, and only during a few moments of the Mauricio Macri and Alberto Fernández administrations managed some sort of positive figures. The level of economic contraction, coupled with high and rising inflation, has been aggressive. Milei is right to say that he inherited a catastrophic situation, but he’s also doubled down on inflation and recession as a plan to stabilise the macroeconomic variables, starting with a budget surplus that appears unsustainable in time without structural reform. 


Whatever one may think about the Milei administration’s economic ideology and plan, the reality is that people’s purchasing power has been even further deteriorated, as poverty has continued to rise and safety nets have been retracted. All of these were not only expected outcomes, but they had been announced by Milei during the campaign. No-one should be surprised, even if the president clearly lied when he said that budget cuts would be borne fully by the “caste” and not the people.

How is the population resisting this economic calamity and will they rise massively against the policies of this administration, as they’ve done in the past? That’s the question that is circulating among certain groups that aren’t necessarily opposed to the president’s economic policy path. 

Several high-ranking officials of the International Monetary Fund have warned Milei and Caputo not to go too hard on the people, particularly low-income sectors. Rodrigo Valdés, director of the Western Hemisphere Department at the IMF, was the latest, calling on the government to focus on the “quality, not the quantity” of the “chainsaw” austerity plan, while asking Milei and Caputo to double efforts to support society’s most vulnerable sectors so that austerity measures doesn’t impact “disproportionately” on working-class families. Gita Gopinath, the Fund’s deputy managing director, had mentioned it a month earlier prior to during a visit to Buenos Aires, while IMF chief Kristalina Georgieva had spoken about it with Milei in Davos.

The expectation of a social flare up for March or April had to do with the depth of the economic crisis that country was already in, together with specific characteristics of the Milei administration. Having managed to overtake the Peronists and their opposition, Juntos por el Cambio, Milei, sister Karina, and his ragtag group of right wingers and libertarians were seen as an amateur political group, without political organisation, geographic presence and depth. They still haven’t filled government posts and have suffered multiple legislative defeats. The president’s mental sanity was questioned along with his predilection for working and collaborating with others. Governability was called into question.

Most of these fears proved true, yet it hasn’t seriously eroded the president’s political capital or his popular support. Opinion polls suggest he’s lost a bit of steam, which was expected, but remains the most popular and well-liked politician in the nation. Through the skillful use of social media, and aided by a digital army of right-wing libertarians, Milei is keeping his political enemies at bay. 

The hand of star advisor Santiago Caputo, who previously worked for Ecuadorean political strategist Jaime Durán Barba, appears crucial in keeping the epic narrative alive, while helping to distract from the day to day economic agenda. This was evident in the debate regarding the 1976 coup d'etat which gave way to the last bloody dictatorship in Argentina, where the Milei administration openly clashed with the traditional human rights sectors which have progressively become more and more intertwined with Kirchnerism. As Milei and his digital army battled “the lefties” on the Internet, even Vice-President Victoria Villaruel – a “champion” among dictatorship denialists – was left out.

The culture wars, like tweets, don’t put money on the table. At least not for the majority of the population. Will Argentine society tolerate the recession for long? Or will it take to the streets to protest its decrepitude? The question is still unanswered. For now, Milei continues to ride the wave.

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Agustino Fontevecchia

Agustino Fontevecchia


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