Argentina Milei reform impressions
I didn’t have much time in Argentina, but I can pass along a few impressions about how Milei is doing, noting I hold these with “weak belief”:
1. He is pretty popular with the general population. He is also popular in B.A. in particular. People are fed up with what they have been experiencing. It is incorrect to think of him as mainly a candidate for the elites.
2. Even if you think he “plays a clown on TV,” he is not a clown. He is a serious thinker who has facility with economic arguments, including at the academic level.
3. If he can lick hyperinflation, but that causes a recession for a year or two, the population will accept that trade-off.
4. Licking hyperinflation will not be so easy. The currency is still declining in value, and Milei has to solve major fiscal problems with 10-15 percent representation in the two-house legislature. For this reason alone, the whole project still could very easily fail, and it would be a long time before libertarian-style ideas would be given another chance in Argentina.
4b. Right now Argentina is auctioning off (FT) $3.6 billion USD worth (but denominated in pesos) in fresh debt. The goal is to clear off central bank debt, and to put fiscal instruments where fiscal instruments ought to be, and sever them from the monetary authority. Right now short-term central bank debt is about 10% of the country’s gdp, a bad place to be. But how well will this new borrowing go? How far can it be extended? The fate of the whole plan may rest on the efficacy of this very particular transition, and if more central government borrowing in Argentina makes you nervous it should. Keep in mind hyperinflation is not just “money printing” (though it is that too), it is after a while an entire interwoven web of corrupt and malfunctioning institutional arrangements. Just how easily and how quickly can those be untangled?
5. Milei’s political enemies are not entirely keen to seize power right now, since they would have to deal with a hyperinflation and possibly a recession. This is operating in his favor.
6. Some of his support is based in a kind of “free lunch” voter desire to simply have more dollars, as some of the populace expects “dollarization” to bring. That is one reason why he won, but it is worrying for his ability to sustain support.
7. What I understand from his deregulatory measures I am very much in support of. But until a broader business confidence is restored, they may not help economic growth much. I don’t think we are going to see a Ludwig Erhard-style economic miracle in Argentina.
8. So far he has yet to make an obvious mistake.
9. Fossil fuel megaprojects (WSJ), such as “Vaca Muerta” may prove Milei’s ace in the hole, if he can hold on long enough.
10. U.S. mainstream media are not doing a good job covering these developments, or even devoting much attention to them.
I will continue to follow this issue.