Of all the esoteric debates Argentina’s economy has witnessed over the years, a recent one discusses whether interest rates should be fixed by an external force – namely the Central Bank – or purely by the market. A libertarian, President Javier Milei of course believes the latter. That’s why he promised to close the Central Bank altogether during the 2023 campaign. He did not deliver.
Yet in explaining the recent economic uncertainty or the political crisis triggered by corruption allegations, the Milei administration seems eager to blame all sorts of exogenous forces for intentionally causing harm. A recent and non-exhaustive list includes foreign espionage teams, former local members of the intelligence services, Venezuelan operatives, Russian operatives, local banks, foreign banks and, of course, the ever-present force of the local ethereal evil: Kirchnerism.
For weeks, the team led by Economy Minister Luis Caputo has been saying that the economy was suffering from what they described as “the kuka risk,” an unsubtle way of referring to the Kirchners that evokes the image of cockroaches. The argument is that markets will not fully trust the country until the Kirchners are no longer a viable political alternative. There is an obvious flaw in this reasoning: anything short of eliminating all the “kukas” would keep them alive and, alas, make them an alternative. Milei also fuels the analogy when he says that he wants to “put the final nail in the coffin of Kirchnerism” in tomorrow’s local election in Buenos Aires Province and in the October national midterms.
But, like the interest rates in the government’s libertarian vision, the crises the Milei administration is suffering from are endogenous. Their origin lies in Milei and his team’s decision to fly solo with their economic and political strategies.
Most of the country’s most prestigious economists have been noting for months that the programme is not accumulating enough foreign reserves to be sustainable over time. The country’s flow of hard currency has been in the red for over a year, with the sole exception of the high season for farming exports this autumn. Since the ‘cepo’ foreign exchange restrictions were lifted for individuals as part of the agreement with the International Monetary Fund in April, Argentines have been hoarding US dollars like there is no tomorrow – over US$10 billion, according to the most recent Central Bank count. Before, during and after, they have also spent billions travelling abroad. These data points provide evidence of a notable peso appreciation that the government has ignored, both in speech and in action.
Politically, the Milei administration also continues to pick – and lose – unnecessary fights that block the completion of its own goals. The gubernatorial election in Corrientes Province last weekend is a perfect example. Governor Gustavo Valdés of the centrist Unión Cívica Radical party sided with most of Milei’s proposals in Congress over a year and a half – it would have been natural for the ruling La Libertad Avanza (LLA) to seek an electoral alliance with him, given that most provinces operate like feudal power systems where it is very difficult to establish a foothold quickly. Instead, LLA chair Karina Milei decided to field her own candidate, who came in a distant fourth with 9.5 percent of the vote.
The same applies to the corruption cases haunting the administration. Both the ‘$LIBRA’ cryptocurrency scam and the more recent – and more serious – kickbacks scandal over the purchase of medicines and services at the ANIDS national disability agency are self-inflicted wounds that seem to have very little to do with outside manoeuvres. In both cases, suspicion surrounds Presidential Chief-of-Staff Karina Milei, the head of state’s sister and confidant. Things cannot get much more endogenous than that.
The good news for the government is that it should be easier to correct internal problems than to fight external forces, especially imaginary ones. As with all governments in hyper-presidential Argentina, Milei has the upper hand to turn the fate of his administration if he commits to it. Re-elections are always for the incumbents to lose – but the last two incumbents failed to get re-elected. The President, however, is not showing signs of healthy change. In an interview with a French journalist this week, he doubled down on his language of total confrontation, saying that the opposition’s ultimate goal was to assassinate him.
The one thing Argentina should not afford is to turn violence – both verbal and physical – into an endogenous feature of its frail but still functioning democracy. This government – any government – has the prime responsibility to try to avoid that. It is not clear it wants to.
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