'shock therapy'

in a country of bounty

Argentina inaugurated a new president, Javier Milei, in December with anticipation. Yet another ‘outsider’ stepping forward doesn’t sound like much news as it’s hard to count how often we see that claim these days. The rather charismatic and wild-haired economist served for a term in the Congress where he was relatively quiescent while serving. In the run up to the 2023 presidential vote, he unveiled some unconventional positions such as defending the former dictators during the 1976-1983 guerra sucia and saying the nation should negotiate with Britain over the Malvinas. He advocates freedom broadly. An economist by training, he brings credentials to address the unceasing woes of corruption, poor taxation systems, ineffective protectionist policies for nascent industry, and the like which Argentina embraced for the past nearly nine decades.

Argentina today is a tragedy instead of an easy success. Millions of immigrants legally poured into this vast agricultural land beginning in the 1840s as Buenos Aires set out to assure neighbouring Chileans or Brasilians did not usurp national territory. Early ventures brought Swiss, English, and Welsh farmers to distant outposts where wheat could produce an export for the nation; Puerto Madryn’s name pays tribute to the Welsh settlers thought most amendable to the climate deemed most like the west of Britain.

Italians, Jews from Russia and the Pale, and Eastern Europeans began sailing for these southern shores in the 1880s as the economy shifted to augment wheat with raising cattle to move on British-financed railroads from the interior to the huge port in Buenos Aires en route to the plates of urbanising Europe.

Buenos Aires, with its beautiful wide avendias and plazas, had pretensions of rivaling Paris or New York at the beginning of the twentieth century as the relatively strong export-driven economy drew European investment. Immigrantion brought workers and fresh ideas to a new society undergoing measurable political and economic growth unlike the harsh conditions of the Lower East Side of New York. BsAs, as it is known, wasn’t perfect but its model seemed thriving on the eve of World War I.

Except the country was addicted to British foreign investment which ended unceremoniously when World War I occurred. Democracy survived for a full generation before Argentina joined virtually all other Latin American states (Colombia a notable exception) in experiencing military revolt in 1930 on the grounds that civilians could not ably rule the country. In the Argentine case, no subsequent government has actually been successful in implementing a fiscal and political program to promulgate enduring economic growth and domestic tranquility.

Various regimes after 1930 sought to recover the nineteenth century magic but the most successful regime was under pseudo-Fascist Juan Domingo Peron who built a political movement (the Peronistas) but proved incapable of governing beyond popluaism. The heady days of exporting that superb Argentine beef, later wine, and wheat were insufficient to meet government spending to support social spending. Import Substitution Industrialisation, championed by a Argentine economist known as a father of the Non-Aligned Movement, Raul Prebisch, could not support the nation as foreign investors walked away from anything smacking of socialist policies. Since Prebisch’s heyday in the 1940s and 50s, Argentine egimes have embraced the ideas of strictly addressing the nation’s problems but without surmounting massive social pressures to continue subsidies.

In short, so much of the past 94 years has been messy in this land of rich soil, open vistas, gauchos, and brilliant Malbec wine.

Fast forward to Javier Milei who sought the presidency as a newbie last year. Argentina’s presidents over the past century included generals (multiple), politicians from various levels of government (multiple), lawyers, and economists (occasional). This is a country which had five presidents in ten days during the 2001-2002 financial meltdown. Whatever one wants to say about Milei, he forewarned the voters that it would not be business as usual.

Buenos Aires has long been at odds with orthodox economists, particularly at the International Monetary Fund which demanded stricter spending limits while refusing to loan the country much needed emergency infusions. In short, the types of steps Milei campaigned on aligned better with the global markets than with his predecessors in the Casa Rosada.

Milei advocates a mixtures of libertarian and ultra conservative views. He labels himself anarcho-capitalist, naming Margaret Thatcher (odd choice for Argentina’s leader), Ted Cruz, and Carlos Saul Menem (a man of multiple perspectives over his time in politics) as heroes. He is surprisingly skeptical of China in a country where Beijing has provided much trade over the past twenty years. Commentators often associate Milei with former president Donald Trump because of the determination both men have to destroy the political establishment.

The initial three months show an increase in unemployment and expansion of poverty and hunger in Argentina, according to some analysts. Time will show whether his ‘shock therapy’ to control runaway inflation will work. The positions that 56% of the nation supported in electing him are a far cry from what ultimately developed under most of his predecessors’ governments, regardless of their avowed positions upon entering office. Each and every one of the political figures surrendered to populist politics, however, to continue the state-led economy which has largely crippled the nation since the 1940s.

Argentina is a case study in how the conservative, ‘slash’ approach will work. Milei’s concerns focus on more than inflation but he will also have to prove that the fiscal irresponsibility so characteristic of the nation’s rulers over the long term is over: I suspect that international bankers have a pretty long memory that will be a bit dubious.

There will also be economic ambitions as well as more immediate livelihood pressures for the millions who voted for him and those who did not. We can’t know yet how long the shock therapy will be needed or whether it will create its own problems down the line.

Again, Argentina is proving a case study of some interest. Buckle up for the ride.

The sunrise was spectacular this morning.

The sailboat on 8 March was an exceptional gift. Wowsa.

Thank you for reading ACC. I welcome any questions, thoughts, advice for Argentina as it’s a wonderful place with heaps of troubles. It also illustrates how hard it is to shift a system on a downward trajectory as it has been for a century.

Thank you for supporting the column. Please share with others if you think it of value to them. I look forward to seeing you tomorrow.

Be well and be safe.

Lautaro Grinspan, ‘Milei’s Austerity is Devastating Argentina’, foreignpolicy.com, 5 Marach 2024, retrieved at https://foreignpolicy.com/2024/03/05/argentina-milei-economy-peso-devaluation-austerity-hunger/

Grant Tudor and Oscar Pocasangre, ‘Argentina’s Elections Are Becoming Dangerously American’, Foreignpolicy.com, 28 February 2024, retrieved at https://foreignpolicy.com/2024/02/28/argentina-javier-milei-reform-electoral/

Alejandro Werner, ‘Milei’s '“Shock therapy” faces an uphill battle in Argentina’, Peterson Institute for International Economics, 5 January 2024, retrieved at https://www.piie.com/blogs/realtime-economics/2024/mileis-shock-therapy-faces-uphill-battle-argentina

Milei deliberately pictured himself as a conservative candidate willing to slash and burn economic mismanagement by ending multiple government ministries.