The Rise of El Loco: Milei’s Radical Agenda for Argentina
Nicknamed El Loco, Javier Milei is a radical and far-right libertarian, and, through an unexpected sequence of electoral upsets, he is the President of Argentina. Milei won in large part by railing against Peronism, a populist economic doctrine that began under Juan Peron, Argentina’s 35th and 45th President. Peronism borrows extensively to finance wide-ranging public spending, like welfare programs and comprehensive social safety nets, to unsustainable lengths. Since Argentina adopted Peronism in 1947, the South American nation has defaulted 5 times, and economic growth has lagged more than other major economies. Milei centered his campaign around Argentina’s track record, pledging to fight Peronism and inflation by introducing a shock therapy of far-reaching cuts to public spending.
Despite this, Javier Milei introduced a large omnibus fiscal reform bill. The bill has 664 articles, primarily focusing on cutting government spending and reducing inflation. One of the proposed ways to do this is through privatization, with provisions for the privatization of 41 publicly owned corporations. The omnibus reform bill also places a large emphasis on the management of Argentina’s public debt, currently sitting at £316.46 billion. Managing the debt effectively has been one of Milei’s major promises and will likely one of his biggest tests. The reforms to debt management would remove some conditions on restructuring debt and eliminate limits on sovereign bonds issued outside of Argentina. Institutional investors are watching closely to see if Javier Milei can make Argentine debt attractive and safe for Wall Street.
Tax reform was also prioritized in the bill, including a provision allowing for tax amnesty to repatriate wealth held by Argentinians through overseas undeclared investments, a move Milei hopes will catalyse the economy. Milei also seeks to increase export taxation, particularly on soy and soy derivatives. While supporters laud the potential to increase federal revenue, many worry about trade relations with China, which consumes £2.25 billion worth of Argentine soy products per year. Throughout his 2023 campaign, Milei used uniquely hostile rhetoric regarding China. His critics are concerned that Milei’s tough stance on China, in words and actions, may endanger trade relations with Argentina’s biggest trading partner.
Milei’s party, La Libertad Avanza, controls 15% of the seats in Argentina’s lower house and 10% in its upper house: Milei presides over a thin and fragile coalition government. This limited mandate is expected to force Milei to compromise on many of his proposed austerity reforms. Due in large part to the thinness of the coalition government, Congress did not pass outright Milei’s omnibus package. Milei has shown a pragmatic side, negotiating with Congress, and giving some concessions to keep his bill alive. So far, he has agreed to scrap the privatization of state-owned oil producer YPF, and agreed to ‘tweak’ 100 proposals within the omnibus bill. Milei has also used presidential decree to circumvent Congress, implementing several minor reforms, including laying off 5,000 government employees since being elected and simplifying 18 government ministries into nine.
Even if Milei is willing to compromise on some proposed austerity reforms, the bill still faces an uphill battle. Many of his critics point to the President’s antics as a contributing factor to the legislative difficulty. The chances of resurrecting the bill are unclear, particularly given Milei's recent confrontations with opponents, according to two congressional members engaged in the deliberations. Milei's lack of engagement in dialogue with moderate factions of Congress was deemed a misstep, further exacerbated by his release of a list of adversaries, which included pivotal allies who had previously endorsed the bill. Any momentum Milei had from his election seems to have been lost.
So far, many of Javier Milei’s reforms have yet to be implemented, and those that have are yet to show their effects. However, Milei’s electoral victory and rhetoric itself have influenced financial markets substantially. The Buenos Aires Stock Exchange increased 34.8% since Milei’s election as investors anticipate pro-business economic and financial reforms, yet the financial world’s reaction to Milei’s election remains ambivalent.
Still, Argentine Federal Bonds reached all-time yields, diving into distressed territory. Argentine debt has historically underperformed other Emerging Markets debt, in large part due to perpetual deficits and defaults. Despite Milei’s promises of fiscal constraint, investor sentiment on Argentine bonds fell, with the bonds having their worst drop in value ever since Milei took office on December 10th, dropping over 5% to 32.7 cents on the dollar. Investor sentiment on the value of the Arginine Peso rose sharply following Milei’s election when Goldman Sachs and Bank of America upgraded their guidance on the Peso. However, the value of the Peso has since fallen 32%.
Image courtesy of Senado de la Nación Argentina via Wikimedia, ©2023. Some rights reserved.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of the wider St. Andrews Foreign Affairs Review team.
