Javier Milei, who describes himself as a radical libertarian anarcho-capitalist, has now been President of Argentina for almost a year.
He promised to end the country’s hyperinflation, to use a “chainsaw” to cut government spending, and scrap thousands of government regulations. Soon after he was elected there was widespread scepticism that Milei would be able to carry out his election promises, as he did not control the two chambers of the Argentine Congress.There was also the speculation that shock therapy would mean extreme hardship and might fuel opposition, which he would not be able to ride out.
Milei’s programme has meant enormous hardship as more Argentinians have fallen into poverty. But there are now pretty convincing indications that Milei will be able to carry out many promises. Despite severe austerity, he has an approval rating of above 50%.
That is a strong message for him to finish the job he has begun. People are prepared to go through hardship in the hope of better times, if not for themselves, for their children. This comes after an economy that has been through long and severe crises.
Soon after his election, Milei put forward a bill with more than 600 measures and an emergency decree with another 300. After failing to get the measures through, he managed to get about 200 measures passed in July, with the help of moderates from the Peronists, whose party is responsible for much of the economic mess. Winning the presidential race with a large majority helped him in getting this support.
Highly unusual
Milei’s politics are highly unusual, particularly for a leader from a region where left-wing politicians dominate. He is uncompromising in his wider agenda to cut government to the minimum, fight the woke, and support the causes he thinks are right.
Leonardo Orlando, writing in the French conservative news magazine Le Point, says that Milei’s campaign is primarily cultural, in promoting freedom of all types. “It is a cultural battle for economic liberalism that the president is leading and which is accompanied by a fight against wokeism, considered threatening the west.”
Milei was the first foreign leader to visit Donald Trump after the US election. He is close to both Elon Musk and Vivek Ramaswamy, who will head Trump’s Department of Government Efficiency, which bears a strong resemblance to a department that Milei set up to scrap regulations that hurt the economy.
His priority in the campaign was the fight against inflation. Upon his coming into office, inflation was more than 210 percent, the highest in the world. Monthly inflation was a bit below three percent in October and the annual rate at around 190 percent. This should drop steeply in coming months as high figures fall out of the calculation of the annual rate.
Milei has taken a “chainsaw” to cut government spending by more than 30 percent. He has halved the number of government ministries from 18 to nine, and laid off thousands of civil servants. The education, higher education, research, culture, labour, children and family, and social affairs ministries were placed into a Human Capital ministry. Ministries viewed as pursuing a woke agenda, like the Ministry of Women, Gender and Diversity were scrapped. A state news agency, a state cinema institute, an institute against discrimination – all viewed as job centres for left wingers – were scrapped.
Public-sector pay
Under Milei, public-sector pay and pensions have risen below the inflation rate. He has almost ceased spending on infrastructure projects and said these will have to be financed by the private sector. There has also been a reduction in social benefits and subsidies for food, energy, and public transport, all of which has caused great hardship.
This has allowed Milei to run a budget surplus every month since he came to power, a considerable achievement in reversing the country’s long downward economic trajectory.
Milei has fought inflation with public spending cuts, but also used the scrapping of bureaucracy and regulation as a means to curb price pressures. As Walter Molano, the Chief Economist of BCP securities, points out in the Financial Times, economic turnaround plans have often failed because these did not address, “the inflationary biases in the byzantine rules and regulations”. Milei, he points out, has broken the mould on this. “Government has begun to dismantle a decades-old web of regulation, intermediaries, middlemen and tariffs that stymied innovations, productivity and competition. As a result, inflationary pressures have ebbed as transaction costs have declined”.
The gigantic state and byzantine regulations are the legacy of 80-year Peronist rule, which combined big spending and a protection of vested interests to maintain support. Milei is trying to undo the 80 years of Peronist institutions and practices that have brought the economy to its knees.
Removing laws
To take up the fight against regulation, Milei has charged a new Ministry of Deregulation and State Transformation with the task of removing laws that hinder economic activity. So far, he has deregulated public travel, scrapped rent controls, made divorce easier, and insisted that the state healthcare system uses less pricey generic medicines.
A paper produced by the Friedrich Naumann Foundation gives an account of the reform of law on rentals, one of Milei’s priorities in coming into power. Under the most recent Peronist government, rentals were subject to multiple restrictions: the term had to be at least three years, adjustments for inflation were only allowed annually, and contracts had to be in the Argentinian peso, which was rapidly declining against other currencies. The entirely predictable result of such controls was that many landlords withdrew their properties from the rental market. After the repeal of the rental law, the housing stock available for rental on real estate portals more than doubled.
Milei has made a good start, but the next phase could be more difficult. In the election campaign, Milei said he would scrap the central bank and allow different currencies to be freely held and used in the country. At some stage, the public expectation will be that once public spending is under control, there will be tax cuts and an end to austerity.
Milei has previously said that Argentina might only see the benefits of lower inflation, spending cuts and deregulation after many years. But the electorate is unlikely to tolerate the hardship over a long period, and will demand benefits. Milei will need stronger growth to create jobs and ease austerity if he is to maintain continued support.
Ideally for Milei, that will have to happen before his four-year term comes to an end in 2027. There is always the risk that if he loses public support, a populist government will be elected and gain the ultimate benefit of much of what Milei has done. But to meet its own populist promises, such a government might undo the Milei project and call it a failure.
There are multiple risks to the Milei type of all-embracing reform, but if Milei succeeds in the face of a severe crisis, he will have provided an example for the world.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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