Argentina has taken a step into uncharted territory. In Sunday’s election, nearly 56 per cent of voters chose outsider candidate Javier Milei over Sergio Massa of the incumbent Peronist government. In doing so, a majority voted to overturn Argentina’s political class and historic economic model.
Milei rose to political prominence promising to throw out the ‘political caste’ that had overseen an economy that by 2023 was suffering 140 per cent inflation, an international debt default and an expected 2.3 per cent contraction of GDP this year alone.
What isn’t clear is how much Argentine voters were paying attention to the practicalities of economic proposals and their likely impact.
It’s also uncertain how far Milei’s undoubted popular mandate will grant him the power to transform the country. Argentina’s system of clientelism runs deep, and it’s not clear that Milei’s party can forge the necessary alliances to dominate the country’s federal system to pass and implement his radical remake of the country’s economy and politics.
A self-professed radical libertarian, Milei has promised to cut state spending by 15 per cent of GDP, slash the number of government ministries by almost half, dollarize the $600 billion Argentine economy and eliminate the country’s central bank.
These proposals may seem appealing in an economy that has suffered chronic public deficits and inflation and a political class that has overseen a chronic boom-bust cycle. But will they work?
An estimated 89 per cent of Argentines benefit in some way from the state’s generous public fuel and public transport subsidies, and social safety net programmes – not to mention public employment in bloated federal and state governments. Drastic cuts will have dramatic effects on living standards and economic growth in which state spending accounts for 38 per cent of GDP.
Tying Argentina’s monetary policy to the US may have a superficial appeal given the South American country’s tendency to print pesos to cover budget shortfalls.
But fully adopting the dollar in an economy as diverse and dynamic as Argentina’s presents a host of problems. For one the central bank currently lacks sufficient dollars to cover the pesos currently in circulation – even at their severely debased value.
Eliminating the country’s bank will also tie South America’s second largest economy to the policies and rhythms of the US Federal Reserve and a US government whose political dysfunction and spiralling debt is increasingly raising concerns.
For many of those who voted for Milei, however, the specifics of the policies were less important than the message: one that the president-elect amplified in his victory speech on Sunday night, declaring that ‘we are at the end of the caste model’ of politics.
And while he called to all Argentines to support him, as he prepares to be inaugurated on 10 December, Milei also warned that he will be ‘implacable’ against those who violently plan to resist his policies.
The question though is specifically what those policies will be, especially given the vagueness of his radical proposals and his lack of political experience or an organized political party.
The federal system
Milei has a clear popular mandate, winning in 21 of Argentina’s 23 states. But his party Liberty Advances has only seven senators in the 72-seat upper house and 38 deputies in the 257 Chamber of Deputies. The party also lacks any governorships in Argentina’s 23 states, a likely liability in the country’s federal system.
He may be able to count on the support of some of the centre-right Together for Change party whose leader Mauricio Macri and first-round candidate Patricia Bullrich supported Milei in the run-off – but the party remains split and consumed with infighting.
If Argentine voters saw the untested, volatile outsider Milei as a powerful way to express their understandable displeasure over the tragic decline of their country, they may have gotten more than they bargained for.
Without much of an apparent plan to put in place his radical proposals, lacking a technical team that can assist him, and without much political sway over the checks on executive power, specifically the Congress and state governments, the next four years – at best – promise to be a bumpy ride.
What the wild-haired right-wing populist is proposing is nothing less than tearing down the political economic system that has governed Argentina for decades.