Argentina’s Milei must show he can govern
Argentina’s new president-elect, Javier Milei, met officials from President Joe Biden’s administration in Washington last week. Having campaigned as a Trump-style scourge of the elite, who sees climate change as a “socialist lie,” he said closer alignment with the U.S. will shape his foreign policy and that he was “very comfortable” with the way the talks had gone. This does little to dispel uncertainty over what lies ahead for his country.
Certainly Milei will need U.S. support when it comes to restructuring the country’s debt to the International Monetary Fund, to say nothing of his election promise to close the central bank and dollarize the economy. But Milei’s ambitions don’t stop there. To repair Argentina’s economy, this tear-it-all-down insurgent has also pledged to slash government spending and dismantle the country’s public sector. “There is no room for gradualism,” he told voters after his win was announced.
Argentina’s economic plight is extreme, and bold measures will be needed to put things right. Initially, at least, the country’s investors celebrated his success. But, as his U.S. visit attests, Milei still conveys little sense of understanding what’s required.
In principle, his plan to dollarize the economy isn’t crazy. For years, Argentina’s central bank has validated the government’s fiscal incontinence by printing money and fueling inflation — a textbook case of “fiscal dominance.” Abandoning the peso and adopting the dollar would stop that at a stroke. But dollarization requires, in the first instance, adequate holdings of dollars. Argentina’s foreign-exchange reserves have been run down to nothing, and foreign lenders won’t be rushing to help.
Even if Milei’s government could conjure the necessary balances, ruling out monetary expansion wouldn’t by itself make the country’s existing debts any more sustainable. Those issues have to be directly addressed, by cutting public spending and raising taxes. If they aren’t, instead of leading to hyperinflation, continuing fiscal excess will only drive the country all the faster to debt default and a brutal economic slump.
To be sure, Milei has emphasized the need to curb spending. He’ll shrink the state by 15% of gross domestic product, he says. But he’s led voters to think that cuts of this size can be achieved mostly by being mean to government bureaucrats (a popular promise, and not just in Argentina) rather than by cutting transfer payments and slashing public services. As an avowed anarcho-capitalist, he sees no role for higher taxes in restoring fiscal discipline. His campaign, in other words, has done little to prepare the country for the changes it will need to endure.
Perhaps, having succeeded against the odds in winning the presidency, Milei can now pivot toward a plan for actually fixing the economy. After succeeding in August’s primary election, he did moderate his rhetoric on social issues a touch, backing away from previous calls to privatize health services, allow the sale of human organs and abolish controls on firearms. And all of a sudden, he’s a bit more cautious about “blowing up” the central bank. But the president-elect still lacks a workable plan for economic reform. And without majority support in either house of the legislature, he’s left to build alliances with parties he pilloried to get this far.
Argentina voted less for workable solutions than to voice disgust at government as usual . The country’s voters are right to be angry. But unless Milei turns into a different politician than the one they elected, they’re likely to be disappointed again.
