Newly elected Argentine President Javier Milei de la Libertad Avanza speaks after the close of elections during the presidential runoff on November 19, 2023 in Buenos Aires, Argentina.
Tomás Cuesta | Getty Images News | Getty Images
Argentina’s Javier Milei, a far-right political outsider often compared to former US President Donald Trump, pledged to implement his radical economic policies shortly after winning the country’s presidential election runoff .
Milei, whose term will run from Dec. 10 to the end of 2027, won a resounding victory in Sunday’s vote, by a wider margin than expected.
He received about 56 percent of the vote, according to provisional results, comfortably beating Peronist Economy Minister Sergio Massa, who conceded after securing just over 44 percent.
This shock result leaves Latin America’s third-largest economy in uncharted territory.
Proud libertarian Milei, 53, once described himself as a “anarcho capitalist” and at one point during the election campaign he even brandished a chainsaw to symbolize his intention to reduce state spending.
Among some of his policy proposals, Milei pledged to dollarize the economy, abolish the country’s central bank and privatize the pension system.
“We have the determination to put the fiscal accounts under control. We have the determination to resolve the problems of the central bank. We have the determination to put Argentina back on its feet and move forward,” Milei said shortly after his victory, according to one translation.
“Today, we return to the path that made this country great,” he added.
The challenges facing Milei’s presidency are significant, however, especially as the country is once again in the grip of a deep economic crisis.
The South American nation’s purchasing power has been ravaged by an annual inflation rate of more than 140%while 2 in 5 Argentinians now live in poverty and key agricultural areas were affected by a historic drought.
Presidential candidate Javier Milei of La Libertad Avanza raises a chainsaw during a rally September 25, 2023 in San Martin, Buenos Aires, Argentina.
Tomás Cuesta | Getty Images News | Getty Images
“Governability is going to be very difficult for him,” Nicholas Watson, chief executive of Teneo, told CNBC’s “Street Signs Europe” on Monday. “We could find ourselves facing a roller coaster.”
“If he actually implements the kind of ‘shock therapy’ he talks about, we expect to see the public’s appetite for this therapy start to diminish fairly quickly,” Watson continued.
“Dollarization? I think they’re going to throw that into the long grass. Central bank reform? I mean, he talked about blowing up the central bank, his move is with a chainsaw… I mean , some of that is just not possible anymore.” realistic.”
Asked if investors could expect sky-high inflation to begin to decline after the vote, Watson replied: “Inflation could rise because the distortions and imbalances in the economy are so intense and so widespread that tackling one thing may mean creating problems elsewhere. “.
“Dollarization is feasible and desirable”
While many remain skeptical of Milei’s political ability to implement some of his economic reforms, others believe the measures could be “very positive” for Argentina.
“The key issue in Argentina since 1876 has been the peso,” Steve Hanke, a professor of applied economics at Johns Hopkins University, told CNBC.Street Signs Asia” Monday.
“One currency crisis after another. One recession after another. Defaults – one after another. They’ve had three defaults on sovereign debt since the year 2000. And the rate of “Current inflation, I just measured it today, is 220% in Argentina,” he added.
“It’s all about the central bank and the peso. So Milei has the right idea. You have to dollarize and a lot of these arguments against dollarization are absolutely stupid. This idea that somehow, somehow, “They don’t have enough dollars. Dollarizing is ridiculous.”
Hanke said he had not formally participated in Milei’s campaign, but had been in close contact with her technical team and described himself as an “informal advisor” on issues such as dollarization.
“Dollarization is achievable and desirable,” Hanke said, saying the next steps should be “an exercise in precision.”
He added: “We are talking about a very precise operation. So, if it is done well, it will be a huge economic boom in Argentina. Very positive.”
The likelihood of immediate dollarization “remains low”
Jimena Blanco, head of Americas at Verisk Maplecroft, noted that Milei will need to implement significant structural reforms if he is to deliver on his promises, including dollarizing the economy and abolishing the central bank.
“The former, however, requires dollars that the central bank currently lacks and, therefore, the likelihood of immediate dollarization remains low,” a research note said.
“Immediately, we expect Milei to announce strict fiscal, monetary and exchange rate policies to begin to stabilize the economy and reduce inflation with the aim of moving towards dollarization. And even if the bonds denominated in pesos would take a hit, market expectations could improve. in the medium term.”
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