Argentina’s Basket Case Economy Got Javier Milei Elected

Just three months ago, the election of political outsider and self-described anarcho-capitalist Javier Milei as Argentina’s next president seemed ludicrous.

Neither the Peronists on the left (who have dominated the country’s politics for decades) nor the moderate right (which has occasionally punctuated the Peronists’ dominance) imagined that a relative newcomer to politics, nicknamed El Loco (The Madman) and pushing an extreme policy agenda, would win with such a clear margin—12 percentage points—over his contender, Sergio Massa, Argentina’s minister of the economy.

While it has become fashionable to try to make sense of these victories by pointing to a perfect storm in which a series of unfortunate events come together, Milei’s victory is more the outcome of a slow march toward collective desperation resulting from dire economic performance.

Argentina’s economic results have been extremely uneven since the 2001-2002 financial crisis, from which the country emerged having defaulted on its foreign debt, facing high inflation, and struggling to maintain the stability and value of the Argentine Peso. In the aftermath of the crisis, Argentina’s living standards deteriorated considerably, with GDP per capita dropping by 20 percent, and more than half of the population living in poverty.

Although the country has since experienced growth in some years and lifted people out of poverty, the consequences of the 2008-2009 global financial crisis were felt especially hard in Argentina because the country continued to be shut out of international debt markets. Since the start of the pandemic, inflation has gotten worse, and poverty levels have risen.

Not surprisingly, Argentines’ outlook on the economy, in particular, and the direction of the country more generally have been pessimistic. Given the country’s decades-long dire economic problems, what is surprising is not that Milei would win the election, but that it took so long for a candidate like him to do so. In the context of the rise of populist anti-system leaders worldwide, it seems like Argentina’s politicians were late to the party.

Presidents sometimes scrap the policies that got them elected, and Latin American presidents are notorious for major about-faces once in office, so it remains to be seen whether Milei will move forward with his radical reform agenda. Doing so would certainly bring major economic and social transformations.

On the economic front, his libertarian agenda could dramatically alter the size and scope of the Argentine state, potentially eliminating the country’s Central Bank and several government agencies—including the ministries of education, environmental protection, labor, science and technology, and health, among others—and significantly cutting the size of the federal bureaucracy by 15 percent of GDP.

Especially appealing to many of Milei’s supporters is his proposal to do away with Argentina’s battered currency, the Peso, and adopt the U.S. dollar as legal tender. The policy’s objective is to restore price stability and trust in the Argentine economy, potentially solving both the problems of inflation and access to credit.

Setting aside the symbolic and policy implications of relinquishing monetary policy, a major practical challenge is that the country does not have access to the supply of dollars required to dollarize its economy. In this sense, dollarizing Argentina is different from previous experiences in the smaller economies of El Salvador or Ecuador.

On the social front, Milei’s opposition to abortion could result in more restrictive laws in that country, regardless of the circumstances, such as whether conception is a product of rape.

Given the country’s decades-long dire economic problems, what is surprising is not that Milei would win the election, but that it took so long for a candidate like him to do so.

Argentina’s abortion law of 2020, which allows a woman to terminate pregnancy during the first 14-weeks, could be a natural target. Milei has also vowed to introduce school vouchers so that parents can choose whether to send their children to a public school or a private alternative. Responding to the country’s increase in violent crime, he has promised to make gun ownership laws as lax as possible in Argentina, and a so-called tough-on-crime approach is likely in store for the country.

Carrying out these major policy transformations is easier said than done.

From a practical perspective, undoing entire government agencies—such as a Central Bank with broad connections to the financial system—is no minor task. More importantly, Milei’s government will face significant institutional constraints. In particular, his political allies will only control a small fraction of Congress. Although Milei has expressed that he’ll put up important issues for a vote through plebiscites, they require congressional approval to take place.

Despite Milei’s scant support in Congress and among provincial governors, the popular appeal of his platform should not be underestimated as an important driver of significant change. Discontent with the status quo is significant among broad sectors of the population—enough to have opted for a risky alternative in the hands of an inexperienced candidate making bombastic promises. Popular demonstrations of support—including Argentina’s famous piquetes (road blocks)—can generate enough pressure among legislators from the traditional parties to go along with Milei’s initiatives.

Milei’s ability to implement his agenda will matter not only to Argentines but to the country’s neighbors and beyond. His election runs counter to a series of recent defeats for the Latin America right (following setbacks in Brazil, Chile, and Colombia).

For now, it seems like the region’s elections have generally followed an anti-incumbent trend, rather than an ideological pattern. To be sure, like-minded parties around the world will be taking note.

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