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Firebrand’s hefty dose of libertarianism aims to cure Argentina’s economic ills
Javier Milei is not your quintessential politician. The goalkeeper turned rock-band member turned libertarian economist, known for his eccentric, shaggy-haired appearance, is nevertheless the favourite to win Argentina’s presidential election. While he may not triumph outright on Sunday, he is likely to advance to the second round, with good prospects of winning.
The Anglo-American press has bemoaned his ascent, because Milei offends progressive sensibilities. In wild media appearances, he can both lecture on free-market economics while denouncing Argentina’s ruling elites as a “caste”. He wields a chainsaw on the campaign trail to signify his desire to slash government spending, would abandon the peso for the dollar, and wants to implement a US-centric foreign policy. For this and his fiery style, he’s been dubbed “populist”, “far right”, and “extremist”.
Milei’s rhetoric is certainly bracing to the non-ideological ear. “For me the state is an enemy, as are the politicians who live off it,” he says. His uncompromising anarcho-capitalism, incorporating a wish to close the ministries of education, health and the environment, will sound jarring to a British audience. Yet to view Milei’s stances through a western lens would be a misjudgment. The momentum behind him must be understood as a reaction to existing big government economic populism, protectionism, and fiscal and monetary irresponsibility in Argentina, itself deserving of the “extremist” label.
Argentina is 158th out of 165 nations in the Fraser Institute’s economic freedom rankings, only ahead of the basket cases Venezuela, Zimbabwe, Syria, Sudan, Yemen, Iran, and Libya. In 1913, Argentina was richer than France or Germany, and had about 75 per cent of the US’s GDP per capita. Now, after oscillating through Peronist socialism and nine sovereign defaults, Argentinians are just a third as rich as Americans.
Forty per cent of Argentina’s 46 million population live in poverty, while only one in five working-age people are in secure private sector employment. The country spent a third of the years between 1950 and 2019 in recession, missing the boat on global reforms such as trade liberalisation. It not only has tariffs and capital and exchange controls, but slaps export taxes on even agricultural goods. Inflation is the primary ailment, and the biggest sign of macroeconomic mismanagement. It has averaged 60 per cent per year since 1940 and today officially stands at 140 per cent, although Steve Hanke, professor at Johns Hopkins University, thinks the true rate is 250 per cent. This is why dollarisation has become totemic to Milei’s campaign.
“Central banks are divided in four categories,” Milei says, “the bad ones, like the Federal Reserve, the very bad ones, like the ones in Latin America, the horribly bad ones, and the Central Bank of Argentina.” Argentina’s failure on inflation is exhibit A of why the public have given up hope on piecemeal reform promises.
During the 1990s, Argentina experimented with a convertibility system, trying to keep a fixed peso exchange value with the dollar. This brought down inflation for a while but later failed because the government tinkered with convertibility and the central bank had too much discretion over monetary policy, making it vulnerable to investors betting against the peg’s collapse. There is no desire for such partial measures again.
Complete dollarisation is thus seen by Milei as a prerequisite for rescuing the economy. The peso would cease to circulate and the Argentine central bank would give up monetary control. Without the ability to devalue, price stability would be restored, hopefully allowing the removal of price controls, export restrictions and labour market laws that seek to treat inflation’s symptoms.
Sacrificing monetary sovereignty is obviously controversial. This week a prosecutor began a legal case against Milei, accusing him of deliberately undermining the peso’s value by “inciting public fear” about people saving in the currency. As a colleague, George Selgin, quipped: “If ‘causing a drop in the Argentine currency’ is a crime, there isn’t a prison there that’s big enough to hold all the present and former government officials who have committed it.”
The need for discipline is pressing, though, because fiscal irresponsibility is still rife. Sergio Massa, the economy minister and one of Milei’s opponents, recently used his governmental power to waive income tax, eliminate a sales tax on groceries and to provide cash benefits to Argentinians, earning the nickname of “an out-of-control Santa Claus”. Money printing will finance this vote-buying effort.
Some fear this excessive borrowing will continue after dollarisation and will lead to more painful defaults if the central bank can’t inflate or play lender of last resort. Yet this continual monetisation of debt and bailouts from the IMF is precisely why Argentina needs a hard constraint. Preventing unexpected inflation taxes from financing out-of-control borrowing is the purpose of dollarisation, not a bug.
Whether Milei’s inexperienced team have the nous to dollarise and commit to its irreversibility is a more pertinent question. Milei has good economists around him, including the former investment banker Emilio Ocampo. Argentinians hold more than $246 billion in foreign bank accounts, safety deposit boxes and cash, which will help. But a full transition obviously requires careful implementation.
A bigger barrier to Milei’s ambitions is how his intolerance to opponents will hinder cobbling together a broad enough coalition to bring in reforms Without a majority, some libertarians think failure is inevitable. Perhaps they are right. But it’s still a mistake to judge Milei’s campaign as if he’s some threat to otherwise cherished institutions. His is another revolt against elites, yes. Yet it’s one that seeks to supplant the populism that has impoverished Argentina with more economic freedom and macroeconomic discipline.
Ryan Bourne is R Evan Scharf chair for the Public Understanding of Economics at the Cato Institute and author of the recent book Economics in One Virus
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