Mauricio Macri came to power in 2015 riding a wave of optimism. The then president of Argentina assured at that time that lowering inflation was easy and promised a shower of dollars, the elimination of exchange restrictions and a country with zero poverty. When he collided with a reality much harsher than he imagined, he blamed the inheritance received after twelve years of Kirchnerism. He had already completed more than half of his mandate and many doubted what he said: in 2019 he lost the elections in the first round against the Peronist Alberto Fernández. Ultra Javier Milei has opted for the opposite strategy: he warns that Argentina is a scorched earth, that this world champion country in economic crises is on the verge of falling into a worse one than all the previous ones and that the only way to avoid it is a painful adjustment .
“There is no money,” summarizes Milei, the first economist to become President in Argentina. His great enemy is the chronic fiscal deficit and he will combat it by stopping issuing currency and with a large spending cut. That means privatizing public companies, reducing state subsidies for public transportation, gas, water and electricity, paralyzing construction and reforming health and education services, among other measures.
“There is going to be stagflation, because when you carry out the fiscal reorganization that is going to have a negative impact on economic activity,” the president-elect warned this week. That technical term is a contraction of the words economic stagnation and high inflation. This is an unusual phenomenon, since it is much more common for income to fall during an economic crisis and this leads to a reduction in household expenses, a slowdown in consumption and a general drop in prices. However, Milei argues that inflation responds to the monetary policy decisions taken in the last two years and in that period the monetary issue in Argentina was a record so far this century. Lowering it, she says, will require “between 18 and 24 months.”
For other economists, however, the relationship is not so direct and they emphasize that inflation is a multi-causal phenomenon and has great inertia. They agree, however, that reducing it takes time. One of the peculiarities of Argentina is that successive economic crises have engraved in the collective memory that you can only save in dollars, never in pesos, and mental accounts in both currencies are a daily exercise for the majority. For this reason, large price jumps are closely tied to sudden variations in the exchange rate. If the peso devalues against the dollar, companies seek to protect themselves and automatically increase their prices, even if the products they sell are domestically manufactured and not imported.
With the aim of moving towards exchange rate unification and putting an end to the dozen quotes that coexist today in Argentina, Milei will lift the restrictions that have the official exchange rate stuck at a fictitious value of less than 400 pesos per dollar, less than the half the market price. The looming devaluation, added to the withdrawal of subsidies in basic services, predicts an inflationary shock that will be felt strongly in the pockets.
Milei won the elections on November 19 against the Peronist Sergio Massa with 56% of the votes. The Argentines now wait for December 10, when he takes office, to know the package of measures with which his mandate will begin. Until then, uncertainty reigns over whether the upcoming adjustment will be sudden and without anesthesia or gradual. The constant changes in message from the leader of La Libertad Avanza make it difficult to predict and fuel endless speculation.
“Another hyper(inflation) is coming. If I could, I would leave the country so as not to see her,” laments a retiree at a coffee table in Villa Crespo. “We were going to the hyper if we continued the same, without doing anything different,” responds his neighbor at the table, a transporter. “Milei is going to sink us,” the first counterattacks. They represent the two Argentinas: one awaits change with fear; another, majority, with hope.
In August, interviewed by EL PAÍS, the then candidate assured that “it is very easy to dollarize Argentina.” He proposed replacing the national currency with the US currency, without giving too many details of how he would do it. A week after taking office as president, he no longer sees it the same and it even seems that the dollarization plan will remain in a drawer at least until the public accounts have been balanced. If this is achieved, the adoption of another currency may no longer be necessary.
One of the last clues that Milei has given is that the middle class will have to weather the next storm on their own. State aid will be scarce and limited to the most vulnerable. “The only wallet that will be open is Human Capital to provide support for the fallen,” she warned this week. Within the mega-ministry of Human Capital there will be the Secretariat of Social Development on which the social plans depend. Alberto Fernández leaves a country with more than 40% poor—56% of those under 15 years of age—and the shock therapy that the ultraliberal economist is preparing to balance public accounts will increase the figure in the short term.
Unlike Macri in 2015, the newcomer is clear that it is important to start with the most negative image possible of the inheritance they receive. “The level of devastation is astronomical,” his spokesperson, Manuel Adorni, wrote in X this week. Milei will be forced to negotiate with other political forces in Congress any project that he wants to carry out, but he must also deal with the lack of patience of Argentines after seven years of loss of purchasing power.
The street will be a thermometer of the mood and it is likely that the major reforms it is preparing will be met with social protests. Milei is preparing to respond with a heavy hand, as demonstrated by the election of Patricia Bullrich as Minister of Security. “Argentina needs order,” was Bullrich’s first warning upon being appointed to head the portfolio that she already held under Mauricio Macri between 2015 and 2019. The future minister believes that she will have more political support than eight years ago to act with firmness if a social outbreak occurs.
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