Argentina’s libertarian experiment: ‘Mileinomics’ thrives, but ‘Mileipolitics’ falters

Hector Torres of OMFIF writes on Mileinomics vs Mileipolitics.

First Mileinomics:

Javier Milei, the president of Argentina, is living the reverse of Joe Biden’s political fate. Both leaders are grappling with a notable disjunction between the actual state of their respective economies and the public’s perception of it, yet these perceptions diverge sharply.

While Americans revel in the prosperity of an increasingly robust economy, they attribute little credit to Biden for this success. Conversely, Argentines are enduring increased economic hardships but credit their libertarian firebrand president for steering the nation clear of hyperinflation.

Milei assumed office on 10 December amid a dire economic landscape. He inherited a country in distress, a bankrupt government, an overvalued peso and a tangled web of 14 disparate exchange rates proliferating under the supervision of a central bank depleted of reserves (with approximately $15bn in negative reserves).

He clinched victory after brandishing a metaphorical and literal chainsaw and vowing to use his first year in office to slash the government’s fiscal deficit (which stood at 5% of gross domestic product), dismantle price controls and untangle Argentina’s excessively regulated economy.

He additionally pledged to shut down the central bank and adopt the dollar as Argentina’s official currency. However, these two proposals are quietly evolving into a more pragmatic approach: cleaning up the central bank’s balance sheet to eventually remove foreign exchange restrictions and, rather than ‘dollarising’ the economy, allowing the private sector to freely select the peso or any other currency for conducting business transactions.

And he is already making strides. Inflation is on a downward trend (from 25.5% down to 13.2% in February). January and February witnessed primary and financial surpluses, with the central bank bolstering reserves by $11bn (albeit still in negative territory). However, the sustainability of these achievements remains uncertain.

Mileipolitics is struggling:

However, the government finds itself under pressure from both the social situation and its political vulnerability, as it lacks control over any provincial government and holds only a minority of seats in Congress, comprising just 15% in the lower house and 10% in the Senate. Furthermore, the government’s coalition lacks significant management experience and Milei, a political novice himself, has little willingness to compromise with the political establishment – the ‘political caste’ in his own words. He is showing a troubling proclivity for picking fights, even with his vice president and with the ‘friendly’ opposition (legislators aligned with Mauricio Macri, a former president).