Ultra-right libertarian candidate Javier Milei celebrates the results of Argentina’s primary elections, Aug. 13, 2023.
Alejandro Pagni | Afp | Getty Images
A leading presidential candidate in Argentina has drastic changes in mind for the national economy.
Javier Milei shocked the South American country — and the world — after he garnered the most primary votes of any candidate in the presidential primary election. His platform includes switching the country’s currency from the Argentine peso to the U.S. dollar and removing the country’s central bank.
The ultra-right libertarian candidate’s next big test comes later this month with the general election, though there could be a run-off election in November. But Milei’s unexpected popularity has already put Argentina’s fiscal policy community on alert and sent ripples through the economy.
“People are looking for another alternative,” said Alejandro Werner, director of the Georgetown Americas Institute and co-author of “Argentina at the Fund,” a book about the country’s economy. “Argentina is an economy that has been at best stagnant in the last two decades.”
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Milei, 52, has been a lawmaker in the country’s lower house since 2021. He’s risen to prominence through eye-popping policies and an anti-establishment appeal that have drawn comparisons to former U.S. President Donald Trump and former Brazil President Jair Bolsonaro.
His ascent comes as Argentina, the third-largest economy in Latin America, has seen a long-term economic crisis deepen in recent years.
The country is saddled with debt, while also dealing with unexpected shocks from the Covid-19 pandemic and war in Ukraine. Inflation, long a pain point for Argentina, is expected to soar more than 140% this year. And the country could be in for its sixth recession within the last decade.
The past several years have been “very tough,” said Fernando Morra, Argentina’s former vice-minister of the economy and a director at public policy think tank Suramericana Visión. “We’re facing a very complicated situation.”
Inflation is something on the mind of many in the country, economists say, from the major presidential candidates to everyday citizens. Many economists agree that Argentina’s economy should shrink and the government can leave some sectors of the economy.
But they say differences flare up around what solutions will actually work — and Milei’s seem particularly sweeping.
One of his key economic plans is dollarization, which is when a foreign country uses the U.S. dollar as a national currency. Some Latin American countries, including Ecuador and El Salvador, have done this, and Werner said they can offer insight into what the process would look like for Argentina.
Moving to the U.S. dollar could pose challenges, Werner said. For example, a unique national currency can be used by monetary policymakers as a vehicle for mitigating external shocks to the economy. Also hovering over the policy is the economic devastation seen in the late 1990s and early 2000s that followed plans to peg the Argentine peso to the dollar.
Milei has similarly called for eliminating the country’s central bank. He told Bloomberg in August that the bank was “the worst garbage that exists on this Earth.”
Beyond his plans for the currency and central bank, he has also advocated for steep spending cuts and permitting the sale of human organs. Milei is also viewed as a bitcoin-friendly and small-government candidate.
Werner said the country’s lackluster growth has led to high poverty levels and an extremely volatile economy, making Milei’s ideas more popular to citizens lacking hope in government.
Morra said part of the appeal is that Milei has branded dollarization as an easy fix to inflation.
“The solution for inflation, it’s complex and it takes time,” Morra said. “On the other hand, dollarization is easy to understand for the people, and it seems to give you a very fast solution.”
Markets on edge
Following the primary election, the country’s central bank said it would hold the peso at 350 against the dollar until the election later this month.
The central bank also hiked its benchmark interest rate by a notable 21 percentage points to 118%. In contrast, the U.S. Federal Reserve last raised interest rates by a quarter of one percentage point.
Those moves came in a bid to quell the markets, which had been betting more moderate candidates would perform better in the primary. Milei’s biggest challengers in the general election are economic minister Sergio Massa and former security minister Patricia Bullrich, though Milei is viewed as the frontrunner.
Milei has led in multiple polls leading up to the general election, scheduled for Oct. 22, according to an analysis by the Americas Society. If none of the candidates wins either 45% of the vote or at least 40% with 10% more than the second-place candidate, a runoff will take place on Nov. 19.
The peso plunged on the heels of Milei’s strong primary performance. The Global X MSCI Argentina ETF (ARGT), a U.S.-traded fund designed to track the Argentine market, has fallen about 13% since the start of August but is still up on the year. The S&P Merval Index — Argentina’s stock market benchmark — is up more than 30% since the primary.
The ETF in 2023
Morra said Milei will need support of the country’s Congress, which he likely won’t have a majority of support in, to dollarize. But he said Milei can try to paint the country’s legislature as “part of the problem” if he goes against its wishes.
When looking at how to keep inflation down longer term, he said, Argentina can follow nearby countries such as Brazil, Chile or Colombia that have performed better. He noted these countries have been able to keep debt down and build up reserves.
Werner said the nature of an election with candidates running on broad platforms can make it difficult to gauge how much support each individual policy has. While the average Argentine voter has likely become more conservative on economic matters, he said, it remains to be seen if Milei’s “shock therapy”-like plans would be embraced by the masses if he wins.
“I would tend to think that almost every Milei voter supports his anti-establishment, anti-traditional politics message,” Werner said. “But then, what percentage of those voters support the libertarian, pro-market agenda? To me, still unknown.”