A Libertarian Shakes Up Argentina

by December 2023
Javier Milei waves to his supporters from a balcony of the government palace after taking office as president on December 10, 2023. Photo credit: Florencia Martin/dpa via Reuters Connect.

Promising libertarian economic shock therapy and a new foreign policy, President Javier Milei is taking Argentina’s political scene by storm. 

A Mandate for Change

With an eleven-percentage point electoral victory on November 19, President Milei claims a mandate for radical change. His inauguration speech on December 10 broke with a tradition of addressing the legislature. Instead he spoke to a mass gathering of supporters and lashed out at the political elite that has repeatedly bankrupted the economy.

Before becoming a deputy in Argentina’s lower house of Congress for his party “Liberty Advances” (La Libertad Avanza, LA), Milei had risen to public prominence as an eccentric television personality who fulminated against the political establishment, labeling them a “political caste.” Young voters found his willingness to speak out appealing. And the country’s economic conservatives liked his background as a committed libertarian with private sector experience. The country’s worsening economic debacle – the world’s second highest inflation rate, a poverty rate climbing over 40% and a deep-rooted debt crisis – provided the backdrop to his decisive defeat of Sergio Massa, the outgoing Economy Minister and candidate of the ruling Peronist coalition. 

On the campaign trail after the first round of votes on October 22, Milei made an electoral alliance with two center-right establishment figures, former President Mauricio Macri and Patricia Bullrich. After battling with Milei during the initial phases of the 2023 campaign, Bullrich campaigned for Milei in the second-round. She has joined his government as Security Minister. However, Bullrich’s party, the Republican Proposal (PRO), is in crisis over her decision to support Milei, and it is too early to tell if the PRO’s congressional delegation will join the administration’s coalition.

Milei’s vice president, Victoria Villaruel, is a well-known figure in conservative circles, with a reputation for revisionist questioning of the country’s dominant narrative regarding the military junta’s campaign of terror and human rights abuses (1976-1983). The economic team is headed by Luis Caputo, a Macri-era finance minister. Caputo specializes in financial markets and has drawn skepticism from economists regarding his lack of experience in macro-economic restructuring. 

Presidential inauguration of Javier Milei in Buenos Aires. Photo credit: Federico David Gross / Hans Lucas via Reuters Connect.

It’s Definitely the Economy

Milei in his first days as president has not called for a snap dollarization of the economy or for closing the Central Bank, as he did on the campaign trail. But after assuming office on December 10 Milei insisted Argentina has “no money” and is already in hyperinflation. As a result, he concluded, there is no alternative to a shock adjustment to reduce the public sector, in order not to affect the private sector. 

In fact, on day one of his administration Milei announced a decree to halve the number of government ministries, from eighteen to nine. On day two, the government announced twenty spending cut measures, some symbolic, such as reducing the salaries of senior officials, while others were substantive, such as cutting central government transfers to provinces, reducing subsidies, restructuring pensions, and suspending public works projects. In total, the spending cuts could amount to 3.0% of GDP and have the goal of eliminating the primary budget deficit. These were announced alongside a much expected 54% devaluation of the currency.

Milei noted these measures are painful in the short run but will end a “hundred years of decadence” and generate an era of economic growth. The International Monetary Fund, Argentina’s largest creditor, praised the government’s “bold initial actions.” Milei plans to honor its upcoming financial obligations to the IMF while his economic team seeks to “reformulate” their debt agreement with IMF authorities.

Milei has been consistent in underscoring that radical economic reform constitutes his core agenda. In his inauguration speech on December 10, Milei blamed the political class for the country’s endemic economic mess. By not talking about the country’s constitution or his commitment to democracy, he also raised questions about whether his use of decree powers will be his preferred method going forward for achieving policy ends. 

New Directions in Foreign Policy

Milei’s foreign minister, Diana Mondino, is a business economist with extensive private sector experience. She has made clear her intent to bring Argentina’s geo-economic agenda in line with Milei’s vision. This includes strengthening current relations with commercial partners Brazil and China while exploring ways to deepen strategic partnerships with key markets such as the United States.

Mondino has also reversed Argentina´s position on joining the BRICs (Brazil, Russia, India and China); the previous government had accepted the group´s invitation to join but had not completed the steps to become a member. Milei´s free trade orthodoxy could clash with the South American regional trade group Mercosur, though he may not prioritize a withdrawal from the group as he prioritizes economic stabilization at home. 

Foreign Minister Diana Mondino. Photo credit: REUTERS/Agustin Marcarian.

Overall, Mondino will face the challenging balancing act of maintaining good relations with regional governments while Milei engages his global alternative right network, a group of individuals as varied as Hungary’s President Victor Orban, former President of Brazil Jair Bolsonaro, Donald Trump, Spain’s Vox Party Leader Santiago Abascal, and Elon Musk. 

The Biden administration appears to be strategically refocusing the bilateral relationship on economic investment opportunities. Argentina is the world’s fourth largest producer of lithium. The White House and Argentina are in negotiations about ways for Milei to benefit from the U.S. Inflation Reduction Act, which disincentivizes bilateral lithium trade opportunities for countries (like Argentina) that lack a free trade agreement with Washington. 

Argentina’s relationship with Israel seems likely to deepen under Milei. Raised Catholic, Milei has announced plans to convert to Judaism and has made clear his personal passion for the Jewish faith. His first post-election trip was to New York, where he visited the grave of the former leader of the Chabad movement, the Lubavitcher rebbe Menachem Mendel Schneerson. Home to the largest Jewish community in Latin America, Argentina often has good relations with Israel and prior presidents have championed this relationship, most recently when former President Alberto Fernández made his first international trip to Israel. 

Milei may also implement a campaign pledge to move Argentina’s embassy from Tel Aviv to Jerusalem, a proposal he’s made on numerous occasions. However, it seems unlikely that he will do that at present, with many Argentine nationals among the hostages still held by Hamas.

Can He Carry Out His Agenda?

Argentina has long been dominated by labor-based center-left politics. Milei, the country’s first libertarian economist to become president, was a stunning campaigner but his ability to govern is untested. His party controls outright 10 percent of the seats in the Senate, 15 percent of the seats in the House of Deputies, and zero governors, thus raising questions about whether he can form a stable governing coalition. 

While Milei would like to avoid the gradualist path of former President Macri and instead administer economic shock therapy, he may not have ample time to implement his libertarian vision. The main reason he may run out of time is that, just as we have seen before in Latin America (including in Argentina), sudden economic change could generate significant societal pushback before it produces manifest signs of stabilization.

When societal backlash occurs, the Milei government will face a pivotal test. He lacks an established party organization and his alliances with coalition partners remain in a trial phase. But he is not without sources of popular support. Youth voters are among his most fervent backers and may represent the most important constituency he built on the campaign trail. Pre-electoral polling suggested that 70% of voters 24 years of age and younger would vote for Milei over Massa. Thus, one of the most pressing challenges that Milei will face will be to solidify the support of Argentine youth so as to mobilize them on his behalf during the inevitable pushback to his reforms. 

Michael McCarthy
Michael McCarthy is President of Ceibo Growth Strategies, a business consulting firm with expertise in Argentina, and an adjunct professor at George Washington University.
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