By Francesco Guala.

To understand why Argentina finds itself in a very particular socio-economic situation, with very high poverty and inflation _^[1], public finances in very bad shape, and a political class that seems incapable of solving even part of these problems, let’s look at the recent history of the country to understand how historical events have affected the country.

Peronism 

Juan Domingo Perón was an army colonel who played a crucial role in Argentine history. After participating in the 1943 coup that overthrew the ineffective civilian government, he was appointed Minister of Labor, and later, in 1946, he became President of Argentina _^[2].

Towards the end of his democratic rule, he adopted authoritarianism and populism. Some of the most important Perón’s policies were: favouring industrialisation and state intervention to benefit the working class and taking an anti-United States and anti-British position _^[3]. While Perón did not bring a structural revolution to the country, he implemented policies that reshaped and marked the history of Argentina. Industrial workers experienced tangible improvements, including wage increases and fringe benefits. Perón nationalised railroads and utilities, financed large public works, and funded these initiatives through foreign exchange earned during World War II and profits from state-controlled agencies. Costly measures, which, coupled with corruption, began to corrode his regime _^[2].

Perón, with the support of his wife Evita, controlled Argentina’s political landscape through his influence over the armed forces. He reduced constitutional liberties and, in 1949, orchestrated a convention to draft a new constitution enabling his reelection. Despite some modifications to his policies after being reelected in 1951, Perón faced opposition that culminated in the 1955 coup, known as the “Revolución Libertadora,” leading to his overthrow and exile to Paraguay _^[2].

Peronism remained a dominant force in Argentine politics despite periods of political turbulence. Perón was reelected president in 1973, but another coup cut short his presidency in 1976 _^[3]. The return to democracy in 1983 marked the resurgence of Peronism, and the party has held power intermittently up until 2023, with the presidency of Javier Milei emerging as an alternative to Peronism.

The new president Javier Milei

On 10 December, Javier Milei was sworn in as president and took power with the promise of revolutionising Argentina’s public sector structure _^[4]. He wants to deregulate the economy by reducing the public sector’s wild influence and presence in the economy by cutting the number of ministries (therefore, reducing public employees), privatising state-owned companies, and dollarising the economy. He knows that drastic changes are needed to change the current state of play.  Inflation, which reached a record high of 211% _^[5], is a challenge to address, and it is the priority of Milei’s plan to rescue the country. He declared an austerity plan, which would be painful in the short run _^[3],  but beneficial in the long run. As Nobel prize winner economist Milton Friedman said, “Inflation is just like alcoholism, when you start drinking, or when you start printing too much money, the good effects come first and the bad effects only come later. When it comes to the cure, it is the other way around: when you stop drinking or when you stop printing money, the bad effects come first, and the good effects only come later” _^[6].

To implement his free-market agenda, Milei did not waste time, and on December 27, he presented the first set of regulation proposals. This document, titled “Basic Law and Starting Points for the Freedom of Argentines,” comprises 183 pages and 664 articles, and it sets a parliamentary review during an extraordinary session scheduled for January 31, 2024 _^[7]. The proposed reforms include declaring  “public emergency” in various areas, allowing the government to assume parliamentary prerogatives until the end of Milei’s term. The legislation also opens the door to privatisation, streamlines the electoral calendar, limits state pension increases, eliminates price controls, raises export taxes, restricts the right to protest, and broadens the definition of self-defense _^[7]. Milei’s long-term vision involves cutting subsidies, removing price controls, and normalising the economy, ultimately ending the need for excessive money printing. However, in the short term, these policies are rising inflation and deepening the recession. In December alone, prices surged by 25%, contributing to a staggering 211% inflation rate. The International Monetary Fund anticipates a 2.5% contraction in GDP for the current year, as happened in 2023 _^[8].

A major part of Milei’s program that has made a lot of noise is his intention to dollarise the economy, meaning replacing the Argentine peso with the US dollar and closing the national central bank. According to experts, it is possible – in theory. Professor Cachanosky of the University of Texas explains that the central bank can go through a liquidation process, paying liabilities with assets and giving the rest to the investors, the Ministry of Finance in this case _^[9]. But on a practical side, it does not seem possible as the measure requires political support, which Milei does not have now. What the new president can do is to reduce the central bank’s action range. This currency switch can come at a high cost for consumers, making them poorer (in dollar terms) as exchange rates are very high now _^[9]. 

Javier Milei certainly doesn’t have an easy job, but he is a politician full of ideas and convinced of his ideas. Only time will tell if they are practically implementable and if they will be successful policies.

Edited by Justine Peries.

References

[1] Clarke, Carrington, and Anne Worthington. “Argentina was one of the world’s richest countries. Now poverty is rife and inflation is over 100 per cent.” ABC, 4 October 2023, https://www.abc.net.au/news/2023-10-05/argentina-is-dealing-with-100-per-cent-inflation-heres-how/102930048. Accessed 6 February 2024.

[2] McGann, Thomas F. “Juan Peron | Rise to Power, Wife, & Death.” Britannica, 13 January 2024, https://www.britannica.com/biography/Juan-Peron. Accessed 6 February 2024.

[3] “Peronismo.” Wikipedia, https://es.wikipedia.org/wiki/Peronismo. Accessed 6 February 2024.

[4] “Javier Milei, Argentina’s new president, warns economy will ‘worsen.’” Le Monde, 10 December 2023, https://www.lemonde.fr/en/international/article/2023/12/10/javier-milei-warns-economy-will-worsen-but-vows-new-era-in-argentina_6330119_4.html. Accessed 6 February 2024.

[5] Tobias, Manuela, et al. “Argentina’s Inflation Hits 211% in 2023, Fastest Gain in Three Decades.” Bloomberg.com, 11 January 2024, https://www.bloomberg.com/news/articles/2024-01-11/argentina-inflation-hits-211-in-2023-fastest-in-three-decades. Accessed 6 February 2024.

[6] Milton Friedman – INFLATION is just like ALCOHOLISM. YouTube, https://www.youtube.com/watch?v=Is-ANzDkPQc. 

[7] Genoux, Flora. “Argentina: Javier Milei advances his free-market agenda with a comprehensive reform bill.” Le Monde, 30 December 2023, https://www.lemonde.fr/en/international/article/2023/12/30/argentina-javier-milei-advances-his-free-market-agenda-with-a-comprehensive-reform-bill_6387106_4.html. Accessed 6 February 2024.

[8] Binetti, Bruno. “Milei’s Reform ‘Tsunami’ Could Swamp Argentina’s Economy | WPR.” World Politics Review, 19 January 2024, https://www.worldpoliticsreview.com/argentina-economy-milei-politics/. Accessed 6 February 2024.

[9] What experts think of ‘anarcho-capitalist’ Milei’s plan to dollarize the Argentinian economy? YouTube, https://www.youtube.com/watch?v=xh8GBSih92Q. 

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[Cover Image] Photo by Marco Verch, licensed under Flickr Creative Commons