Javier Milei: Argentina’s President-elect is taking a high risk gamble

The Argentine Chainsaw Massacre is about to get underway. It will cut deep.

Javier Milei’s convincing victory in Argentina’s Presidential election this week means the man dubbed “El Loco” can now try to slash and burn years of economic orthodoxy and begin what he says will be the “reconstruction of Argentina”. When he takes office on 10 December, his inbox will be overflowing with problems.

Annual inflation is above 140% meaning Argentina is keeping company with the likes of Zimbabwe and Venezuela. The economy is based on the peso although the currency is almost worthless. There are about 20 different exchange rates for the U.S. dollar, crime continues to rise, and almost half of the population live below the poverty line. This desperate state of affairs is part of the reason a clear majority of voters (56%-44%) were prepared to roll the dice on a man who describes himself as an anarcho-capitalist, and who wielded a petrol-powered chainsaw on the campaign trail.

Such antics helped him win what was a stunning victory for a man who only entered politics in 2020. Milei was born in October 1970 in Buenos Aires. His mother was a housewife and his father a bus driver who went on to become a businessman. He is estranged from both parents and claims they physically and verbally abused him as a child. He had few friends at school which is where the nickname “El Loco” was first used due to his assertive attitude and angry verbal outbursts.

He studied economics at the University of Belgrano and went into academica where he worked as a professor for more than two decades teaching a range of courses including macroeconomics, microeconomics, and economic growth. He went on to become chief economist for a major company and began to make appearances on television. His mannerisms and appearance, alongside his trenchant views attacking government spending soon got him noticed. In 2019, he appeared in a caped crusader costume as the character “General AnCap” – short for “Anarcho-Capitalist”.

Milei owns four English mastiffs whom he has named after economists. One is called Milton after Milton Freidman – a sign of Milei’s belief in free market capitalism. He argues that “the market is everything, the state should be nothing”.

This will inform his approach to tackling Argentina’s myriad economic problems. On Thursday, he said his government will cut spending by 15% of GDP next year by stopping public works and cutting “politics-related spending” – details were scarce. He’d already announced he’ll close various government departments, slash taxes, and privatize state owned companies including the national oil and gas company.  The video showing him announcing which ministries are for the chop gives a flavour of the style in which he may govern – “Culture ministry – out! Environment – out! Ministry of women and gender diversity – out!”.  Despite less tax revenue, he also promises to preserve pensions, welfare spending, and the education budget.

His signature policy though is the pledge to “dollarise” the Argentinian economy. Dollarisation is either a country replacing its sovereign currency with a strong foreign alternative, usually the dollar, or using both currencies. For example, Ecuador dollarised in 2000, El Salvador in 2001, and Panama has used the dollar since 1904.

Milei believes this will curb inflation and lower interest rates, especially if the US Federal Reserve reduces rates next year. That in turn will increase outside investment, boost the economy, thus eventually allowing Argentina to begin to pay down its debt to the IMF instead of borrowing from countries such as Qatar to meet payment deadlines.

Milei’s plans have been harshly criticized, not least because Argentina’s official dollar reserves are so low the government does not have enough to convert the pesos people have in their bank accounts into the American currency. Supporters of the idea point to Ecuador’s dollarisation which did not lead to a run on the banks during the 9-month long switchover. In fact, the banks saw a huge increase in people depositing the dollars they held at home.

It’s a high-risk gamble. If Milei goes ahead then the banks will have to gradually replace pesos with the equivalent in U.S. dollars at the free market rate of exchange, or slightly above it to attract depositors, but not too a high a rate in case it further fuels inflation.

That is for the medium term, in the short term though it looks as if Argentines will have to suffer spending cuts deeper than they’ve ever experienced. The President-elect has told people that the first six months of 2024 will be “very hard”. To make the cuts, Milei must find enough support to get policies through Congress. His party has just 38 seats in the 257 seat lower house, and 8 of 72 in the senate. He’s counting on going into coalition with the centre-right Juntos por el Cambio party.

He will cut quite a figure on the international stage. He’s called Pope Francis a “lefty son of a b*tch” and dismissed Brazil’s President Lula Da Silva as a “communist” he is not interested in meeting. He wants “nothing to do with the communists of Cuba, China, North Korea…” although he may change his mind about at least one of those – China is Argentina’s second largest trading partner.  He’s passionately pro-Israeli and has toyed with converting to Judaism although thousands of the country’s Jews have signed a letter condemning his “political use of Judaism, its texts, and its symbols…to underwrite his discourse of hate.”

On the Falkland Islands, he takes the standard line – that one day they should be “returned to Argentina” – but says this should be through diplomacy and “a long, very long, negotiation in which Argentina must propose something interesting”. The issue is unlikely to be at the top of his to do list.

It’s going to be a rocky road for the former lead singer in a band which played Rolling Stones covers. On the campaign trial he used a song by the Argentine group Le Renga because it chimed with his slogans “I’m not here to lead sheep. I’m here to awaken lions”. Le Renga’s song ‘Panic Show includes the lines

“Hello everyone! I am the lion….

I am the king and I will destroy you

All accomplices are appetizing to me”.

President Milei will face political opposition, and possibly opposition on the streets. His libertarian beliefs are about to tested in the real world. If dollarisation and austerity do not work, he may be reminded of one of the Stones’ greatest hits: “You can’t always get what you want”.

Write to us with your comments to be considered for publication at letters@reaction.life