It will be very difficult months for the Argentinians. The economic shock announced by the new president, Javier Milei, aims to reduce public spending by an amount equivalent to 5% of GDP, but the long-term goal is to reach 18% of the Argentine GDP, a staggering 80 billion dollars. In Argentina, contrary to common beliefs, the total public spending equals 36% of GDP, compared to a European average of 51%. The issue lies elsewhere, namely that the tax base is very limited because a large mass of workers and activities operate in the informal sector, and above all, the country is burdened with a huge public debt, which reached 400 billion dollars in 2023, 90% of GDP. The radical adjustment of public spending, along with the privatization of loss-making state enterprises, is expected to bring the public budget to balance by 2024, according to Milei. This is to be achieved first by overcoming an inflation spike expected to reach 240% in 2024, compared to 180% in 2023. Liberalizing the dollar, ending the parallel market, uncontrolled consumer prices, and public services paid at the real cost without subsidies are the watchwords, but they will have to contend with an impoverished population. The outgoing administration of Alberto Fernandez received a country in 2019 with 35% of the population in poverty and hands it over with 40% in poverty, including the extremely poor, totaling 12 million Argentinians. This is one of the most spectacular failures of the Peronist movement, which, especially under the leadership of the Kirchner couple, had adopted a “progressive” rhetoric after having been corporatist, neo-fascist, and neoliberal in the past.
After the terrible default of 2001, a result of the long wave of monetary policies in the 90s with the Peronist Menem, Argentina experienced a period of vertiginous growth in the 2000s. It managed to solve the debt problem and genuinely helped those affected by the default. However, the eternal populist temptation, especially after the death of Nestor Kirchner in 2010, along with the glaring economic mistakes of his widow, Cristina Fernandez, succeeded in creating even more poor people while maintaining a hopeless welfare system, financed by public deficit and worthless money printing. Add to this the unlimited distribution of positions of power in the state and public enterprises, amid corruption allegations at the highest levels. The interval of the Macri government, between 2015 and 2019, only added a new gigantic debt to the IMF without changing either the economic orientation or the welfare machine that feeds on poverty. The terminal phase of the decline was the government of Alberto Fernandez, a Peronist lawyer who insulted Cristina Kirchner for years and then joined forces with her in the 2019 elections. A government that worsened the suicidal economic trends of Cristina Kirchner’s previous governments: exchange controls, parallel dollar, import restrictions, random dirigiste policies, and above all, uncontrolled public spending without brakes or controls. The vote in November 2023, which was the biggest defeat for Peronism, was only partially a victory for Javier Milei; it weighed more on the vote against the managers of the decline of the last 20 years. And Milei, being an outsider, managed to catalyze discontent, sidelining the historical center-right led by Patricia Bullrich, later included in his cabinet composition. President Milei has no political ideologies but only economic ones. In his government, there will be loyalists from the beginning, key figures from the third-placed center-right coalition, and sectors of anti-Kirchnerist Peronism, as well as representatives of the world of national and multinational big businesses. A right-wing but coalition government, united in wanting to close the Kirchnerist experience forever. The point is that Milei’s “animal instinct,” anti-establishment, and anarchic, known for being the crazy economist on television, could play a nasty trick on the coalition if he truly intends to keep his promises to the electorate. For now, moderation prevails, simply because Milei’s party has 7 out of 72 senators and 38 out of 257 deputies. Without the votes in parliament of Macri’s deputies and anti-Kirchnerist Peronists, governance is impossible.
For now, the measures announced by Milei closely resemble the experience of the Peronist Menem, who won the elections in 1989 amid hyperinflation. Thanks to the policy of parity between the dollar and the peso and the privatization of state enterprises, Menem provided the country with artificial stability that collapsed with the default in 2001. Many elements of Milei’s government come from that experience, but the world is no longer the one of the 90s, and much less Argentina. At that time, Argentina had a poverty rate in line with countries in the European Mediterranean and, above all, a large public heritage to sell or undersell. The trump cards of the new government could be the start of production of the gigantic natural gas field in Vaca Muerta in Patagonia and the exploitation of lithium in the far north, in addition to traditional exports of agricultural products. The question is whether it will be able to overcome the inevitable political and social upheavals of such a radical adjustment as announced. An adjustment, let it be clear, that any winning candidate would have had to face, even the Peronist Mazza. The issue is the timing and political sustainability. Two factors that cast serious doubts on Milei’s future, but if he manages to overcome the first year, successfully tackle inflation, and put the state’s finances in order without increasing poverty rates, he might have a political future beyond his current 4-year term.
In this analysis, I intentionally left out the topic of human rights and Memory, which this government will challenge, having even denialists among its ranks regarding what happened in the 1970s in Argentina. There will certainly be attempts to reclaim a so-called “shared memory,” highlighting the figure of innocent victims of attacks by leftist armed forces. However, these issues did not influence the pre-election debate and are not expected to be part of the agenda of the new government with particular measures regarding them. Everything will be played out on the relationship between the economy, the state, and society. And it is on that field that the success or failure of a figure who, in just 5 years, thanks to television and social media, managed to rise to lead a G20 country, will be measured.
alfredosomoza 