Argentina’s new president Javier Milei is a one off, well known for his unkempt hair style and equally wild right-wing libertarian ideas.
His career to date has been singular. He has been a semi-professional footballer, a rock musician and a guru of tantric sex among other things but it is as an iconoclastic professor of economics that Milei has won greatest fame.
Argentina’s stricken economy could now become the test bed for Milei’s ideas. It is – to say the least – in desperate shape. Reserves are exhausted, output is shrinking and the country is effectively bankrupt. To keep services going the outgoing government simply printed money, fueling a catastrophic fall in the value of the peso and a return to the kind of price increases Argentinians last witnessed thirty years ago. The annual inflation hit 143 per cent last month.
Milei wants to sort things out by taking a chainsaw to the public sector, which he blames for many of the country’s woes. He aims to close many ministries, sell off state companies and slash public spending from 38 per cent to 23 percent of GDP.
He has threatened to close the central bank which he once described as “the worst thing in the universe”. He wants to abolish the local currency – the peso – and replace it with the US dollar.
Milei wants to align automatically with the United States and Israel and has said he will refuse to work with “socialist” countries, even though two of those singled out on his black list – neighbouring Brazil and China – are both among Argentina’s biggest trading partners.
Political realities will constrain his ambitions. Milei’s party has only 35 of the 257 seats in the lower house, and 7 of the 72 senate benches, leaving him dependent on more conservative centre-right parties.
Yet even a light version of “Mileionomics” would be likely to lead to social turmoil. Drastic spending cuts are certain to increase poverty and joblessness. Trade unions, which retain close links to the defeated Peronist movement, are sure to be opposed. Traditionally they have been quick to resort to strikes and street blockades to get their way.
Milei has signalled that he too could take a tough approach in other areas, again increasing the chances of conflict. Perhaps significantly, the new deputy president Victoria Villarruel is a lawyer who has spent much of her career defending military officers responsible for the human rights abuses committed during the extreme right-wing dictatorship of the late 1970s and early 1980s.
Moreover, shock therapy has often led to disaster in the past, most notoriously perhaps in Russia in the early 1990s. Argentina itself has tried similar – if not quite so extreme – economic radicalism in the recent past and it has not ended well.
In the early 1990s, the government of Carlos Menem established convertibility, a strict monetary scheme which obliged the government to retain one dollar in reserves for every peso in circulation.
It worked for a while but eventually ended in economic stagnation, social unrest, debt default and at the end of 2001 a chaotic period which saw five presidents in the space of 12 days.
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