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A Year of Living Dangerously

Javier Milei's Shock Therapy for Argentina.

Javier Milei

While the rest of the world is going to hell, Argentina actually might be amusing to watch in 2024. On his second day in office, Javier Milei - a self-styled anarcho-capitalist – or what the less theatrical might call a libertarian – devalued the already awful Argentine peso by 50%, cut the number of government ministries from 18 to nine, froze public works and raffled off his last legislator’s salary to the cheering supporters. All while warning of rough economic times ahead – and he was going to bring them on.

What, you well may ask, would cause all of that? Once one of the richest, most advanced countries in the world, the Argentine government has been in the red for 123 of the last 113 years. Largely due to the home-grown political cut of Juan Peron – the guy who was married to Eva, who looked like Madonna. It’s modus operandi was largely hoovering up all the borrowed and co-opted money it could for government hand-outs, and not paying it back. Now  sane investor will loan the country any more money, and it still owes the IMF $43bn. So the central bank keeps printing money – which has juice inflation to 113%.  

Milei campaigned on the slogan “The is no alternative to austerity” and he wasn’t kidding. Next year he plans to increase taxes on imports from 7.5% to 17.5%, and increase taxes on all exports. Although child benefits will double and cash transfers to the poorest will increase. Investors are pleased, they are also watching. All of this will slow growth before it accelerates it.

The problem for Milei is that, despite what your teenage niece will tell you, investors and the poorest are never really the ones who oust governments.  That generally falls to who Eric Hoffer called the “new poor”; mid to lower middle class who have slipped in status and spending power. Since Argentina’s return to democracy in 1983, demonstrators gather at the Plaza de Mayo in Buenos Aries on 20 December to protest the cause du jour. And they were planning to come out in full force this year. As a pre-emptive, the government announced that any protestors arrested being “disruptive” (defines as blocking streets or doorways of people actually trying to get to work) would have their welfare cut. The turnout was underwhelming. Which tells you all you need to know about that set.

Compounding the problem is that Milei’s support in Congress is thin, and all but one non-Peronist president that attempted economic reform has been ousted from office. Milei has so far avoided Congressional push-back by declaring an economic emergency for two years. Which may or may not be enough time for the Argentine economy – which is absolutely going to get worse before it gets better – to get on the right footing.

Like chemo therapy, it has a good chance of actually working given time and provided that it doesn’t kill the patient first. It’s worth noting that the last place this shock-therapy was tried at scale was in Boris Yeltsin’s Russia after the collapse of the Soviet Union – and after a few years of that treatment, the people were hankering for the stabilizing effects of Vladimir Putin of all places.

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