Oh, what a circus; oh, what a show. Just when it does not seem that the world can get any stranger, Argentina has elected an avowedly right-wing libertarian economist who campaigns like a 1970s rock star, lives alone with five cloned mastiffs named after prominent liberal economists and claims not to have brushed his hair since he was 13 (he is 52). President-elect Javier Milei also happens to be an evangelist for tantric sex whose nickname is El Loco (The Madman).
Among many of his campaign trail promises he has vowed to “dollarise” the economy and “blow up” the central bank to prevent Argentina’s corrupt “political caste” from printing any more pesos. He has paraded around Buenos Aires brandishing a chainsaw, in a depiction of what he intends to do to government spending and state bureaucracy.
How did we get here? With nearly 40% of the population living below the poverty line and inflation running at 143% per year, Argentina is a cautionary tale of the dire socioeconomic consequences of monetary and fiscal mismanagement.
After roughly two decades of Peronista governments, the debt-to-GDP ratio has ballooned, with monthly interest payments amounting to 2.5 trillion pesos. Outgoing economy minister Sergio Massa, who lost in the presidential run-off to Milei, simply got around this problem by printing money, which caused the skyrocketing inflation. Milei has explicitly ruled out resorting to this tactic.
The president-elect will also need to start talks with the IMF, to which Argentina owes more money than any other country, about restructuring its $44-billion loan programme.
Many, particularly among the young, have responded favourably to Milei’s promise to replace pesos with dollars and drastically slash the bloated government. In a much-watched video, Milei rips the names of the ministries he intends to dispose of off a whiteboard while shouting “afuera! [out!]”. These include the ministries of Culture, Environment, Women and Diversity, Public Works, Education, Transport and Social Development. He also intends an aggressive privatisation drive of state-owned companies such as the state national oil company YPF.
It remains to be seen how effectively he will be able to put these promises into action. Milei, a novice politician with no executive experience, is far short of a majority in Congress. His upstart party, La Libertad Avanza (Freedom Onwards), battled in the earlier congressional elections due to a lack of nationwide structures. It will hold just 39 seats out of 257 in the lower House of Representatives. In the Senate, which renews a third of its members every two years, the position is even worse: Milei’s party has only eight out of 72 seats.
No straightforward reform
Reforming Argentina’s labyrinthine political and bureaucratic structures will not be straightforward. Ironically, after repudiating Argentina’s political class, Milei will need the support of a majority of the establishment parties to govern effectively, particularly the centre-right coalition headed by former president Mauricio Macri.
This means that many of the president-elect’s more extreme proposals, such as closing down the central bank and replacing the peso with the US dollar are unlikely to see the light of day, at least in the short term. Either way, with the central bank being out of foreign exchange reserves, it is unclear how the country could afford to abandon the peso and adopt the dollar.
As with all such outlandish populists voted into power, it is perhaps not what his actions in office are as much as the messaging that counts. Milei is regularly compared to Donald Trump, who was quick to congratulate the maverick following his victory. Argentina, often somewhat of a vanguard of where emerging markets are looking for solutions, has shown that in desperate economic climes, voters are willing to look for compellingly desperate economic solutions.
Similarities with SA
While the South African political landscape lacks an extremist libertarian protagonist such as Milei, the economy has many similarities. Unemployment, inequality, the poverty rate and economic growth are all at approximate levels or worse in SA. Argentina’s official debt-to-GDP ratio of 80% is marginally higher than SA, but its budget deficit of 2.4% has been consistently similar or lower.
The fundamental difference between the two countries is that South Africa’s monetary policy has, by comparison to Argentina, been exemplary. Having an independent central bank safeguarded by the Constitution is, without exaggeration, the one thing preventing South Africa from following an Argentinian path to rampant inflation, IMF bailouts and the types of drastic budget-slashing policies promised by Milei.
Voters next year in South Africa should take heed. The EFF promises to change exactly this central bank independence and monetary prudence. As written in an EFF statement from March 2023, “[The EFF] calls on the South African Reserve Bank to abandon its flawed inflation targeting policy and instead focus on incentivizing the increased money supply into the productive sector to create jobs suitable for millions of low-skilled workers who can become consumers.”
Such sentiments could be lifted straight from the Peronista libretto. The consequences, if such a shift were enacted, would be as predictable as the rhetoric. DM