The Argentinian Economic Crisis: The Impact of Milei’s Policies
If Milei’s plan really worked, it is too early to conclude; only time will tell. Nevertheless, the greatly prejudiced President has given the Argentinians a glimpse of hope for the end of what has been a disastrous decade for Argentina’s economy and democracy.
October 2023’s presidential election outcome has left many worldwide perplexed with Argentinians’ choice of who to rely on in the hope of the nation’s resurgence. Javier Milei, a 53-year-old economist, was able to beat Peronist Economy Minister Sergio Massa by a wide margin, pulling in almost 56% of the ballot or 14.5 million votes. What many may have found appealing to voters was his radical approach to a severe economic atmosphere Argentina has experienced over the past 10 years. Despite such, Milei has recently shown to represent an opportunity for Argentina’s resurgence.
Argentina has grappled with great issues of corruption and low public trust in institutions. An example is that of the Kirchner Peronist couple; between 2003 and 2015, Argentina saw significant economic growth under Néstor Kirchner and Cristina Fernández de Kirchner; however, their time in office was accused of allegations of fraud. Ever since then, Argentina has been on a roller coaster. Successors to the Kirchners, such as Macri and Fernandez, have attempted to lift up the state through various fiscal and monetary policies, but these weren’t enough to sustain the economy and, especially, a $44 billion loan agreement with the IMF made in 2018. Such has led to the current situation: inflation peaking at 209% in September and poverty at well over 40%.
Javier Milei is Libertarian, an outsider party that proposes an alternative to the main Argentinian historical parties: the Peronists and Radical Civic Union. Founded in 2018, the party advocates for free markets and dramatically cutting the size of the state. Some extreme promises made during the campaign, such as removing the central bank, weren’t carried out. It remains hard for the president to pursue every policy as in Congress, Milei only has a small number of seats, which will hold up or even block potential reforms. Currently, he holds seven seats out of 72 in the Senate and 38 out of 257 in the lower Chamber of Deputies. Nevertheless, this didn’t stop him from halving the number of ministries.
Taking Action
Initial decrees repealed laws and eliminated dozens of state regulations. The decrees also kick-started a process to make the labor market and the health system more flexible. It is fair to say that these changes did not go unnoticed. About ten thousand people took over the streets of Buenos Aires following the cut of $20 billion. Outstanding and more recent remains the “Ley de Bases”, or Bases Law, a series of blanket reforms designed to effect deregulation and cut federal government spending. Firstly, it authorizes the privatization of several government-owned entities. An example is that of ENARSA, a significant Argentinian company in charge of overseeing the generation and distribution of energy in the country. Furthermore, it promotes the development of large projects by insulating investors from certain risks related to the Argentine economy. Such is done through providing tax incentives, like a reduction in income tax by 25%, and foreign exchange benefits, such as the right to pay dividends and interests in foreign currency without restrictions or prior authorizations. Further emphasis is put on public infrastructure. The Ley Bases introduces amendments to the public infrastructure regime. For instance, concessions will only be granted through national or international public tender processes and not by direct awards to state-owned companies.
There are doubts about the effects of some policies, especially the privatization of state-owned enterprises. Consequences could resemble those that Argentina experienced in the 1990s. Firstly, privatisation could very well lead to an increase in rates and worsening of service, something that can't be afforded by the increasingly poor population. Visible examples already include those of Edenor and Edesur, energy companies which have reported significant profits while users face higher rates. But it is not only this, the neoliberal model promoted by Milei could increase unemployment and job insecurity. Reports estimate that 500,000 people had lost their jobs in the 1990s. It is right to assume that Argentina’s resurgence won’t be immediate and smooth, many sacrifices will be made to see growth in the future, however, some beneficial results can already be visible.
Milei’s Speech
On November 11th of this year, Milei announced that Argentina would be “entering its best moment in the last 100 years”. Through a series of significant cuts in public spending and austerity measures, Milei’s government was able to alleviate the more severe economic recession of the last years. Results can be seen through the National Institute of Statistics and Census (Indec), which estimated inflation to be around 3% in October. Instead, in September, the Consumer Price Index (CPI) stood at 3.5% for an accumulated 101.6% so far this year and 209% interannually. These are gradual steps towards rebuilding the health of the economy. If Milei’s plan really worked, it is too early to conclude; only time will tell. Nevertheless, the greatly prejudiced President has given the Argentinians a glimpse of hope for the end of what has been a disastrous decade for Argentina’s economy and democracy.
