What will Milei’s presidency mean for Argentina?

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

Right-wing libertarian Javier Milei was elected Argentina’s president on [November 19], defeating current Economy Minister Sergio Massa, who conceded, by a margin of nearly 12 percentage points. Milei faces an economy with triple-digit inflation and rising poverty, and he has vowed radical actions including dollarizing the economy and closing the central bank. He has called climate change “a lie of socialism” and said he would cut ties with China and Brazil, saying he does not want to “do business with communists.” What are the major factors that led to Milei’s victory? What are the biggest changes Argentina will see during his presidency? What is the future of Argentina’s relations with other countries in Latin America, as well as the United States and China, under Milei?

Juan Cruz Díaz, managing director at Cefeidas Group in Buenos Aires: Javier Milei’s rise to the presidency stems from a confluence of factors tapping into widespread discontent with the ruling coalition. The economic downturn, characterized by rising inflation and poverty rates, provided fertile ground for Milei to exploit public dissatisfaction. Fatigue with the political status quo, particularly Kirchnerism, allowed Milei to leverage opposition proposals, notably from the Juntos por el Cambio (JxC) coalition. Initially propelled by an anti-establishment narrative, Milei strategically shifted post-election, adopting a more conciliatory tone. Reconciliation with JxC’s Patricia Bullrich and former President Mauricio Macri played a pivotal role in securing crucial support and JxC votes, contributing to Milei’s victory in the second round. Milei’s presidency promises substantial changes in Argentina, marked by a complex government transition. Lacking governors and majority support in Congress, he faces the challenge of navigating a politically intricate landscape, necessitating consensus-building to capitalize on electoral momentum. In economic policy, Milei pledges swift implementation of campaign proposals and reforms, advocating for a shock therapy approach. This adds a distinctive dimension to his presidency, signaling proactive and decisive action to address economic challenges. However, resistance from social and labor movements, along with political opposition, poses challenges. Skillful consensus-building is crucial for Milei to navigate these successfully, balancing bold economic measures with garnering support. Looking ahead to Milei’s foreign policy, potential tension with Brazil and China is expected, reflecting Milei’s distinct political stance. Despite ideological differences, maintaining commercial and strategic ties remains imperative. Alignment with the United States and robust support for Israel are anticipated. Balancing ideological disparities, pragmatic considerations and the need for consensus-building will define the success of Milei’s administration on both the international stage and economic reforms.

Kezia McKeague, regional director at McLarty Associates: Argentina’s economic crisis made this election ripe for an outsider adept at channeling voter dissatisfaction with the political establishment. While it would be a misreading to interpret the result as a significant ideological shift to the right, it does reflect deep frustration with economic mismanagement and a desire to try something new. Moreover, once Milei had defeated the more traditional opposition proposal of the Juntos por el Cambio coalition, the support of Mauricio Macri and Patricia Bullrich proved key to mobilizing anti-Peronist voters against Sergio Massa. Milei’s proposed economic changes are ambitious, including trade liberalization, privatization of state-owned companies and dramatic cuts to government spending, taxes and the size of the state. He has promised to dismantle the labyrinth of foreign-exchange restrictions that have hurt all foreign investors in Argentina, though the speed and sequencing will be delicate given the risk of hyperinflation. His most controversial proposal—to eventually dollarize the economy and eliminate the central bank—will be challenging for both technical and political reasons. We should expect significant resistance from Congress to dollarization as well as the structural reform agenda; Milei’s young party will have only 38 of the 257 seats in the Chamber of Deputies and seven of the 72 seats in the Senate, and he will need tremendous political skill to negotiate legislation and overcome opposition from labor unions and social movements. On foreign policy, Milei has pledged to distance Argentina from Brazil and China, its two largest trading partners, and align closely with the United States and Israel. He will also face an urgent renegotiation with the International Monetary Fund and financial liabilities resulting from adverse rulings in international courts.

Jimena Blanco, senior research director and chief analyst at Verisk Maplecroft: Argentina has entered uncharted political territory with the victory of far-right, populist outsider candidate Javier Milei, who lacks executive experience and the political machinery required to steer the economy away from the abyss—the undisputed top challenge for the incoming administration. The country’s economic future hinges on his ability to present a credible stabilization plan with a view to restoring macroeconomic order—this would require a major devaluation of the official peso/dollar exchange rate to remove the gap with the other foreign exchange instruments ahead of lifting capital and currency controls, as well as a contractionary monetary and fiscal policy. Only then can he consider dollarization and the elimination of the central bank, two campaign pledges that require major structural reforms. Milei therefore needs to broaden his base in Congress, where his party is in a minority position. His victory does not in itself indicate widespread voter support for his more radical proposals. Indeed, the electoral outcome is more a function of the overwhelming rejection of the current economic model than a blanket endorsement of Milei’s more controversial policies, particularly his party’s highly conservative social agenda. And moderation will come. The Latin American precedent shows that outsiders are forced to moderate—in policy terms, even if not in rhetoric—by the centrist allies they need to legislate. Milei will not be an exception, particularly given Argentina’s dire need to restore investor confidence to drive exports and attract foreign direct investment inflows to replenish depleted reserves. This economic imperative will shape the foreign agenda, with the United States and China alike.

Jerry Haar, professor and executive director for the Americas at the College of Business at Florida International University: Sunday [November 19] was the expiration date for the Peronista kleptocracy. Anger, despair and desperation are powerful political motivators; and when the body politic boils over, the impacts can be a Chávez, Bolsonaro, Trump or AMLO—in essence, a rejection of the ancient regime. Having governed Argentina for most the last three decades, Argentines were simply fed up with a government and political party that have produced a poverty level of 40 percent, 142 percent inflation, a peso that has lost half its value so far this year and endemic corruption. Argentina is a case study of a resource-rich country with poor institutions and decrepit governance. Winning an election is one thing; governing is a whole other matter. Lacking political experience and representing a political party that holds just seven out of 72 seats in the Senate and 38 out of 257 in the House, Milei will need to learn the art of compromise and ditch some of his wackadoodle policy proposals; otherwise, he will be forced to rule where he can by executive decree and be sandbagged continuously by the multi-party opposition. Hopefully, the biggest change we will see—changes all Argentines clamor for—is the reform of the state. While dollarization will be an uphill battle, Milei could and should address business-related reforms needed in cross-border trade, the ease of doing business, labor policy, regulatory and tax reform, infrastructure improvement and competitiveness across all sectors.

Republished with permission from the Inter-American Dialogue‘s daily Latin America Advisor

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