Javier Millay prepares shock therapy to cure Argentina’s ailing economy

Voters in Argentina took a leap into the unknown after electing Javier Millay, a radical libertarian outsider, as president on the hope that his promise of shock therapy could cure the ailing economy.

Right-wing populists in the likes of Donald Trump and Italian Prime Minister Giorgia Meloni were quick to congratulate Millay, the mop-topped TV economist who beat Economy Minister Sergio Massa by a landslide 11 percentage points. But Argentinians were already worried about how the flamboyant first-term lawmaker could govern the deeply divided South American nation without a majority in Congress.

Millay promised in a series of radio interviews on Monday to privatize the national oil company YPF, state television and radio. “Anything that can be in the hands of the private sector will be in the hands of the private sector,” he promised. He promised to visit the US and Israel in the three weeks before his inauguration, saying it would be a “spiritual” experience.

His flagship policies are driving the chainsaw into a bloated state and dollarizing the economy, but Miley has limited room to maneuver as he inherits a dire financial situation. Argentina’s foreign exchange reserves are depleted, annual inflation hit 142.7 percent in October and Massa emptied the coffers for campaign spending.

A messy transition looms: the pair have already clashed after Millay angrily rejected Massa’s attempts to hand him immediate responsibility for ensuring stability. Alberto Fernandez, the incumbent president, all but disappeared during the election campaign as the ruling Peronists sought to distance Massa and his unpopular boss.

One of Millay’s first tasks will be to prepare a new 2024 budget to send to Congress after he takes office on Dec. 10. Analysts expect it to include major spending cuts after Millay reiterated in his victory speech that “there is no room for gradualism.” The president-elect will also have to open talks with the IMF, to which Argentina owes more money than any other country, to restructure its troubled $44 billion loan program.

“Everything points to this being the roughest transition in at least a decade,” said Fabio Rodríguez, associate director of M&R Asociados, a consultancy in Buenos Aires. “There are many, many issues and they are all urgent.”

President-elect Javier Millay wants to close the National Bank of Argentina, the country’s central bank © Marcos Brindici/Getty Images

Millay’s insurgent campaign — waged largely on social media and based on an iconoclastic agenda to burn down the central bank and eliminate the country’s political “caste” — resembled those of his ideological soul mates Trump and Jair Bolsonaro, the former US presidents and Brazil respectively.

But Millay is likely to face a tougher fight in Congress to pass legislation than any of his fellow populists. His La Libertad Avanza (LLA) coalition, founded just two years ago, has fewer than 40 of the 257 seats in the lower house and seven of the 72 in the Senate. None of Argentina’s 23 powerful regional governors are from his party.

Former center-right president Mauricio Macri formed an alliance with Millais, but even if all lawmakers in his Pro party backed the LLA’s proposals, he would still have less than a third of the lower house and a fifth of the senate.

Millay has yet to confirm who his economy minister will be, saying that after Massa’s shenanigans, naming him now would mean putting his most important minister “in the electric chair”. But he will be under pressure to reveal his choice soon: names under consideration include Macri’s former central bank chief Federico Sturzenegger and former finance minister Luis Caputo, according to local media.

Millay speaks to supporters outside his campaign headquarters in Buenos Aires after winning Sunday's run-off election
Millay speaks to supporters outside his campaign headquarters in Buenos Aires after winning Sunday’s run-off election © Mathias Delacroix/AP

“A lot will depend on the dynamic between Millay’s supporters, who are inspired by his most radical rhetoric. . . and the so-called adults in the room, people associated with Macri and [defeated centre-right candidate Patricia] Bullrich,” said Oliver Stünkel, professor of international relations at the Getúlio Vargas Foundation in Sao Paulo. The latter group saw Millais as “a useful vessel to push their policies, but who felt they could control him and prevent him from implementing his most radical ideas.”

Stünkel added: “Milley doesn’t have the allies to hire an entire administration, so it will be up to the technocrats he denounced before the runoff vote as the deep state.”

Still, Millay’s relatively strong mandate — he has won more votes than any president since Argentina’s return to democracy in 1983 — may allow him to adopt quick spending cuts in the initial honeymoon period, Rodriguez said.

“In Argentina, it is customary for parties not to block the first budget of the next president,” he said, adding that Millay could alternatively take the budget presented to Congress by Massa and change parts of it by decree without legislative support.

Sergio Massa addresses his supporters in Buenos Aires on Sunday
Sergio Massa addresses his supporters in Buenos Aires on Sunday. The Minister of Economy lost the runoff by 11 points © Adriano Machado/Reuters

Another pressing concern is the rising national debt to domestic creditors. It now costs 2.5 trillion pesos to service the debt in monthly interest payments — the equivalent of the fiscal deficit Argentina has run up in the past eight months, according to Marina Dal Pogetto, executive director of EcoGo, a consultancy. Massa paid the bills by printing money, a measure which Millais ruled out.

“The situation means there will be an economic shock; the question is whether it will be an organized shock or an unorganized shock,” she said.

After what will likely be the shortest of honeymoons, the Peronists will be waiting to pounce on Millais’ every misstep. The movement’s control over labor groups and its ability to bring large crowds into the streets for protests threaten tumultuous times for the inexperienced new president.

Analysts see an even tougher path ahead for Milei’s other flagship policy: replacing the peso with the dollar and shutting down Argentina’s central bank.

Milei’s team said about $40 billion would be needed to dollarize the economy, but Argentina’s hard currency reserves are negligible and the country lacks access to international credit. The LLA is also far short of the majority it would need in Congress to pass dollarization legislation.

“It looks like the idea of ​​dollarization will at least be put on hold and for now Milei will focus on a more traditional stabilization plan,” said Amilcar Collante, an economist at the National University of La Plata. “This will mean trying to equalize the exchange rate.”

Most economists believe a major devaluation of the officially fixed exchange rate is inevitable, but Millay said immediate removal of exchange controls was impossible.

“First, we have to deal with [the debts to local creditors]. If you don’t do that and get rid of control, you’re going to have hyperinflation,” he said on Monday. “We have a very clear plan on how to solve the problem.” He did not provide any details.

Much remains unclear about how Miley will continue to pursue her agenda, Stünkel said.

“A lot has to do with his personal leadership capacity, his interest in the minutiae of politics – which we don’t really know about. He was not a particularly productive congressman. He hasn’t made many friends, so he can leave the deal-making to others.

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