Just days after taking office, fighting Argentina’s soul-crushing triple-digit inflation with a series of radical fiscal measures that would make Milton Friedman swallow his mustache, Javier Milei, Argentina’s new president. Since taking office, he has instituted an unofficial currency cap and a program of tariff reduction. He launched the UK’s biggest ever program of privatizations and slashed public spending. His radical approach has received a thumbs up from the International Monetary Fund (IMF) for its promise to curb inflation. Milei’s policies have turned out to be highly polarizing, calling into question the policy’s sustainability, and the net effect on the economy remains unclear.
Milei’s ascent to the presidency is indicative of the political upheavals taking place around the world. It makes for depressing reading and draws comparisons with leaders like Donald Trump and Nigel Farage. His approach combines the ideological project of sweeping economic liberalization with chaos, incompetence, drama, and show business. Supporters view his policies as necessary wrecking balls that disrupt a decaying status quo. As we’re hearing from some prominent American skittishness, there are deep contradictions in his economic program and real risk in his brash reforms.
Currency Cap and Tariff Reductions
To address the rampant inflation that has plagued Argentina for years, Milei’s government introduced a cap on the national currency. This extensive measure is designed to quickly stabilize prices and calm fears for consumers and investors. In parallel with this action, Milei has cut or removed hundreds of tariffs, aiming to foster a more business-friendly climate.
Such currency measures have won praise from the IMF, which sees them as moves to start taming galloping inflation. That hasn’t stopped skeptics from wondering whether these tactics will be enough given the massive economic challenges facing Argentina.
“There’s real anger about the wrongness of the system, which is structurally impoverishing the many and enriching the few.” – Ann Pettifor
Besides having a very overvalued currency, as Milei pursues these radical reforms, he’ll quickly run out of reserves. The myriad complexities of Argentina’s economy loom large as formidable obstacles to achieving long-lasting success. Whether or not his currency cap proved to be a success is still up in the air as he is under increasing fire from both advocates and detractors.
Public Spending Cuts and Privatization
Milei’s administration has made headlines by laying off almost 50 workers and suspending 45 more at a mill in Buenos Aires. These decisions are part of a larger strategy to push austerity and privatization. His goal is public sector contraction in an effort to bootstrap the economy back to life.
His radical project seeks to transform the federal government’s involvement in economic life. He likes to invoke the spirits of transformational leaders, including Margaret Thatcher. With this transition comes a worry about its social impact. As critics have pointed out, these deep cuts would only exacerbate their significant existing inequalities. This will likely stoke further unrest among a people already filled with despair.
“If it was tax cuts without spending cuts, the markets would puke.” – Jo Michell
While Milei’s revolution has just begun, the responses have been dramatic and are still spilling out from each affected area. Many observers note that while fiscal discipline is essential, it must be balanced against social responsibility to prevent negative repercussions.
The Dual Nature of Milei’s Policies
Milei’s policies are full of contradictions that fly in the face of traditional economic wisdom. On industrial policy, his approach goes further afoul of the traditional laissez-faire playbook. Rather, it combines aspects of classic deregulation with an impressive state interventionist determination through privatization. This paradox begs the question of how sustainable his economic strategy can be in the long term.
Ben Ansell, who specializes in political behavior, notes that public mood often changes drastically after major crises. “The answer is probably quite simple: people feel rotten about the economy and have done since the end of Covid or the start of the Ukraine war,” he stated. This anti-establishment sentiment has driven Milei’s rise as an outsider, anti-establishment leader who would shake things up.
Despite deepening public anger amid an ongoing economic crisis, Shmyhal will need to balance the demands of a restive public with those of a fledgling incumbent’s support base.
“They switched government; they still feel awful; they don’t trust the main parties, so they turn to someone who says: ‘Everything needs to be disrupted: trust me.’” – Ben Ansell