The libertarian president of Argentina, Javier Milei, took office with an economic shock program. How successful is this policy?

Portrait of Javier Milei

People in Argentina still believe in him: Javier Milei in February Photo: Yara Nardi/Reuters

BUENOS AIRES taz | Javier Milei does not skimp on superlatives: “We are in the process of making the largest budget adjustment in the history of humanity,” said the Argentine president at the beginning of April. The 53-year-old's ultimate goal is to break even on the state budget and, if all goes well, even reach a surplus. For Milei, the Argentine budget deficit is the cause and inflation is the consequence. In 2023 it rose to 211 percent in Argentina, which is constantly in crisis, the highest annual value since 1990.

As a qualified economist, Milei should know what he's talking about. He is not a liberal, but a libertarian for whom the State is a criminal organization. Before dedicating himself to politics, two years ago, he worked as an economist on all the talk shows that invited him. He had many. Milei is resourceful and ruthless in his calculations. His performances, always ranging from aggressive to angry, promised the best entertainment and, therefore, the best ratings on the dry topic of the economy.

“I am the first president who won the elections by announcing a shock program,” Milei said in November 2023 after his victory in the second round with 56 percent of the valid votes. First, he devalued the peso by 50 percent, which immediately made everything imported more expensive and caused inflation to rise. This was followed by the cancellation of all public investments and infrastructure projects and a wave of layoffs in ministries and state institutions. The president had called for a 15 percent job cut.

All of this is leading the already stagnant economy to the recession that the government wants: a drop in economic production plus lower consumption is equivalent to a drop in demand and prices, according to the equation. The result should be a notable decrease in inflation. So far this calculation seems to be working. In January the monthly inflation rate fell to 20.6 percent, in February to 13.2 percent and for March a rate of 12 percent is expected.

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Milei's course is still running

“The majority of society has an enormous need to believe that Milei's policies are working,” says Lucas Romero of the Synopsis polling institute in Buenos Aires. The support for Milei is unwavering. “Of the 100 respondents who voted for Milei in the second round of the November elections, 97 have so far remained firm in their decision,” says Romero. And what's more: “In the second round of elections, Milei received 43 percent of the votes of all eligible voters. If you convert current poll numbers into votes, I would have even more votes today than I did back then.”

Milei can still take advantage of the population's need for faith and the lack of a political alternative. “The crucial question is how long. How much suffering will people endure before they feel rewarded with results? Or will their patience run out first?” says Romero.

There is a lot of traffic in an exchange house in Buenos Aires. It's the beginning of the month. “Everyone needs pesos to pay their bills,” says a woman with a number in her hand that tells her when she can enter one of the five booths. “No one buys dollars, everyone sells,” says the woman. After a long time, the illegal exchange rate has fallen below 1,000 pesos. One US dollar currently costs 955 pesos.

Money is exchanged at the Western Union branch without identification or receipt. “If you don't come with a suitcase full of one-dollar bills, no problem,” says the young man behind the counter while a small machine makes noise to count the 1,000-peso bills. “We are in a gray area, officially illegal, unofficially tolerated,” he says, tying the bills with a rubber band.

Most are poor

Since the government froze the population's savings in December 2001 and account holders were only allowed to withdraw 250 pesos – then $250 – per week, confidence in banks and the government's financial policy has been permanently undermined. shake. At the end of 2023, Argentines owned around $280 billion outside the local financial system. In foreign accounts, in safe deposit boxes or simply under the mattress. The sum can be regularly calculated from information from the state statistics agency and is ten times greater than the dollar reserves of the Argentine central bank.

“The upper class has no money problems, the middle class takes their savings from under the mattress and the lower class can be happy even if they had a mattress,” says the woman at the exchange office. The latter is not said cynically, the situation in the poorest districts is bad. She personally still has reservations, but fear among her friends is growing. Her number lights up, she says goodbye and closes the cabin door.

By early January, the number of poor had reached its highest level in 20 years. According to a study by the Catholic University of Buenos Aires, 57.4 percent of Argentina's 46 million inhabitants lived below the poverty line, for which the previous Milei governments are mainly responsible.

The poverty line is based on the value of a basic basket of goods for a family of four people. Its value in February was 690,900 pesos. A look at wage trends shows how quickly people can fall into poverty: in February the government raised the minimum wage from 156,000 pesos to 180,000 pesos and in March to 208,000 pesos. This means that in February a family of four needed almost four minimum wages to avoid falling below the poverty line. The upcoming statistics will show how many additional weapons Milei's adaptation policy is responsible for.

The social consequences are brutal

Because next, due to the reduction in state subsidies, the population will face increases in electricity, gas and water rates, as well as a triple-digit increase in local public transport rates. Fuel prices have already more than doubled in recent months. Salaries and pensions are not keeping pace with these increases and the purchasing power of income continues to crumble. Consumption will continue to fall.

The social consequences are so brutal that even the International Monetary Fund (IMF) is concerned about Milei's austerity policies. Argentina is, by far, the IMF's largest debtor. President Milei has repeatedly stated that he wants to far exceed the fund's usual savings targets.

The IMF is glad that the government does not have to implement budget cuts against the will of the majority. However, the population has suffered such a loss of purchasing power in recent months that it is now necessary to “improve the quality of the adjustment, not the quantity,” as the IMF's Western Hemisphere director, Rodrigo Valdés, said in late March. What worries the IMF official is the fear of a social uprising against the president, added to a refusal to pay the debt.

“I doubt that Milei will govern until the end of his term,” says political scientist Martín D'Alessandro. Milei is a minority president. She only has 10 percent of the seats in the House of Representatives and 15 percent of the seats in the Senate. However, she follows a strategy of confrontation towards Congress.

It is not a libertarian society

“In the last 25 years, all the presidents of Latin American minorities who have clashed with the respective Congress have not completed their mandate,” said D'Alessandro, and: “Argentine society has not been transformed into a libertarian society.”

Almost no one takes Milei's ideological horizon seriously. “The really powerful economic and political establishment says, 'Okay, let's see. Maybe we'll get lucky and he'll fix things. But they do not believe that this is the right path. “Milei is unpredictable, angry, intolerant and spreads fear among his employees.

“Today Milei has 50 percent approval for his policies. “What happens when she only has 20 percent?” asks D'Alessandro. Milei is a right-wing populist, in the same way that the still influential former president Cristina Kirchner is a left-wing populist. “What worries me is the idea that two radicalized poles are emerging that do not respect the values ​​of the Constitution, the separation of powers or the label of democracy.”