There is a local saying that goes “Leave Argentina one month and everything seems to have changed. Leave for 20 years and everything appears to be just as it was.” This past week has exemplified the truth of that saying more than ever before. Last weekend, the administration of President Javier Milei appeared disoriented and ensnared in a debilitating run on the peso that threatened its future prospects. This weekend, the government displays a sense of assurance following the acquisition of substantial financial assistance from the Donald Trump administration. Yet 25 years ago – or seven if you prefer a shorter timeframe – the country found itself entrenched in a similar economic and political labyrinth: lacking the funds to service its debt while simultaneously engaging in excessive spending.
Milei seems to embody the ideal candidate, strategically positioned at a pivotal moment in his political journey, much like previous instances in his career. He emerged as the anti-establishment presidential candidate, employing incendiary rhetoric regarding corrupt politicians while pledging to eradicate inflation amidst the backdrop of virtual hyperinflation in 2023. The current president, characterized as a firebrand of the ultra-right, employs anti-Communist rhetoric amidst growing apprehensions in the United States regarding Chinese influence in a region predominantly governed by centre-left leaders, at least for the time being. It is not merely a matter of chance, of course. Milei has cultivated his anti-establishment position over several years as a media commentator and, more recently, aligned himself with Trump at an early stage, even prior to Trump’s nomination as the Republican candidate in 2024. The outcomes of those two investments were favorable. The subsequent inquiry pertains to how Milei allocates his ‘earnings.’ The substantial backing received this week from Trump and US Treasury Secretary Scott Bessent has effectively rescued the Milei administration from the looming threat of a peso run and a potential debt default that was developing. For the third time in slightly more than a year, Milei and Economy Minister Luis Caputo have successfully implemented measures to prolong the viability of the government’s economic programme.
Nonetheless, the oscillation of markets between pessimism and optimism is not a sign of robust economic health. Considering the background and track record of Milei’s economic team, it is evident that this is a primary concern for the government. However, markets do not cast votes, particularly not on the day of elections. The outcome of the Milei programme hinges on the actions taken by the government moving forward. The path ahead remains evident, necessitating that the Milei administration abandon aggressive tactics in favor of more prudent economic policies and improved political strategies. This week, amidst the market celebrations over the promised US cash, Gita Gopinath – who until three weeks ago served as the deputy managing director of the International Monetary Fund – stated unequivocally “US support is certainly helpful to prevent speculative currency moves.” Nonetheless, sustainable advancement will necessitate Argentina’s transition to a more adaptable exchange rate framework, the accumulation of reserves, and the cultivation of domestic backing for its reforms. Gopinath undoubtedly proposed those identical recommendations during her tenure with the IMF management. It is probable that she was overridden by the political determination of the IMF’s board to continue backing Argentina, notwithstanding the discrepancies present. Perhaps this is one of the factors that influenced her decision to depart and express her genuine opinions, now that she has gained a clearer perspective from her academic role at Harvard University.
The government must refrain from presuming that its fortunate circumstances will persist indefinitely. Voters in Buenos Aires Province signaled earlier this month that the economic program, despite its relative success, faces electoral constraints. If it goes awry, those constraints will be breached, and failure will become a reality, rather than a mere possibility, by the time 2027 arrives. In his address to the United Nations General Assembly this week, Milei articulated that the world is confronting a contradiction between the present and the future. He stated it was a dilemma encompassing “political, economic and philosophical dimensions.” The issue, he articulated, is that political leaders are opting to indulge in the present, even at the cost of jeopardizing the future. “Today’s bread means tomorrow’s hunger,” he stated, with a touch of poetic flair. Milei highlighted his administration’s primary accomplishment of achieving a fiscal surplus. Conversely, he may wish to implement the same approach regarding his government’s perpetual requirement to absorb increasing amounts of US dollars through unmanageable foreign debt.