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Is Argentina Out Of The Woods Yet?

21 November 2023   |  

On Sunday, November 19, Argentina elected Javier Milei to be its next president in a decisive run-off election. Radical libertarian outsider, Milei, defeated Sergio Massa, the country’s Minister of Economy since August 2022. Voters, investors, and business owners are hopeful Milei’s libertarian policies, which are a drastic divergence from the current policies, will aid Argentina’s recession-prone economy. The country is currently facing inflation topping 140%, interest rates at 130%, dwindling central bank reserves, and a weakening currency regime. However, the grass may not be greener on the other side. Implementing Milei’s policies will be a challenge without a congressional majority, and his abrupt, “chainsaw” approach may backfire. Even Taylor Swift's Eras Tour, which visited Buenos Aires last week, could not boost this economy—is there anything that can?!

Latin America has seen a rise in polarizing political battles in recent years, and this Argentinian election is the latest example. Massa hailed from the populist Peronist movement which has dominated the Argentine political landscape for the better part of the last two decades. In the eyes of many voters, Massa represented a continuation of the political thought that is responsible for the economic mess they are in today. At the other end of the spectrum, Milei’s unorthodox campaign focused on taking a “chainsaw” to the existing government. His proposals included abolishing subsidies, privatizing state-owned assets, dollarizing the economy, and eliminating the central bank. He has embraced free trade and threatened to sever ties with countries who challenge that—such as China and Brazil—and has not been afraid of ruffling feathers along the way.

The race between Massa and Milei was neck and neck since the start. Milei pulled off a surprising victory in the August primaries, but Massa was able to come back during the first-round elections in October, although he didn’t earn enough votes to win outright and avoid a run-off. Polls leading into this past weekend’s run-off election were indicating the battle would be closely fought, but in the end Milei won by a wide margin.

Will Milei be able to shake off Argentina’s economic woes or will he become the anti-hero?

The global economy will be watching closely as Milei takes office on December 10. Efforts to ease inflation, reign in interest rates, and normalize the currency are at the top of the wish list for foreign investors. The peso has come under immense pressure in recent weeks, but a struggling currency is something Argentinians know all too well. The peso has depreciated nearly 50% year to date and more than 80% since the current administration took office in December 2019.

Milei has yet to spell out how he will execute his policies—specifically dollarization given the sheer lack of dollars in reserve—and he faces an uphill battle against a Peronist majority in Congress. While there is a lot of pressure from investors and external creditors to start making changes, Milei will need to be thoughtful about how he implements reforms. Perhaps he should look to Georgia for inspiration, where, following the Rose Revolution, its government successfully overhauled a Soviet-style bureaucracy and incrementally implemented libertarian policies over the course of a few years.

Milei has his work cut out for himself, and to complicate matters further, Argentina must make its next payment to the International Monetary Fund in just a few short weeks. Maybe winning is more like a nightmare dressed like a daydream.

  • EMsights Capital Group
  • Insights

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