his political strength, but it may not be enough.Joaquin themes
Paradoxically, the word that seems to define Argentina's (and the world's) first ultra-libertarian president is pragmatism. At first, Milei's pragmatism was seen as a positive trait that enabled the economist to shake off some of the fringe characters and ideas of his La Libertad Avanza coalition. However, he could also lead to negative results if his plans don't work out.
The economist and president was smart to forge an electoral alliance with Mauricio Macri and Patricia Bullrich, as well as hardliners from the PRO party, and later moved strategically to demonstrate independence from the former president to avoid being portrayed as a puppet like his predecessor . He gave Bullrich the security and defense ministries, thereby diminishing the power of Vice President Victoria Villaruel and thus her dictatorship-denying influence, particularly over the security forces. He also made a deal with Luis “Toto” Caputo – a leading economic figure from the 2015-2019 Macri government – behind the ex-president’s back and apparently distanced himself from certain extreme measures proposed during the election campaign, such as dollarization and the torching of the central bank – where the economy minister's business partner, Santiago Bausili, from the financial consulting firm Anker Latinoamerica, took over the management.
While Caputo had fallen into disrepute, his recycling by Milei initially did not frighten the markets, certain sectors of society and the media, which had apparently already sided with Milei. As the nascent government begins to implement its “chainsaw” austerity plan, society will begin to feel the pain of the extreme measures and its tolerance will be tested, as will Mileis and his team at the center of it once again stands. Toto' Caputo.
Toto was the first to face the music and present an economic plan for the Milei government, even before the president, who only had the courage when he announced the DNU emergency decree, which came before the omnibus law. In the first announcement, Caputo tried to convey a didactic message that highlighted the weight of the situation left by the Fernández-Fernández government (“la herencia”). He appeared uncomfortable, just as he had in his previous public service roles, where he avoided the media and the government reportedly suffered from panic attacks. His decision to assume the office of the “electric chair” remains confusing. The minister announced a series of measures aimed at achieving a budget surplus in the first year of his term, including aggressive budget cuts and tax increases.
Caputo's announcement marked the first time Milei's plans were detailed beyond a letter of intent. While in line with the election promise to reduce government obligations by more than five percent, the extent of the devaluation of the official peso-dollar exchange rate (120 percent to 800 pesos) and the other measures have raised alarms. Most prices have risen sharply in recent weeks, especially gasoline and food prices, suggesting that inflation is rising and could continue. The December figure already reached 25.5 percent and many expect similar figures for January. At the same time, it becomes clear that it is logically contradictory to force the “caste” to take over the entirety of the austerity plan, as this inevitably has an impact on the everyday citizen, which is reflected in cuts in subsidies and cuts in social spending. Milei had promised that he would rather amputate his arm than raise taxes, but he has increased export duties and the PAIS tax, driving up the value of the dollar even further in certain transactions.
The “Caputazo” (as the plan is jokingly called) replaced pure austerity measures with a mix of higher taxes, spending cuts and the “dilution” of part of the deficit through high inflation. In the next few months, rampant inflation will continue to progress and put the population under severe pressure as wages and salaries fall even further. Milei had warned that we would have to suffer on the way to libertarian utopia. Left-wing social movements and unions have already begun mobilizing against the government, including a general strike by the General Confederation of Labor. Given Bullrich's tough disposition, these were peaceful marches. Will they remain so in a few months when they are joined by the middle class, desperately trying to make ends meet?
Once again the question of Milei's pragmatism will take center stage. Assuming the effects of his economic plan are as painful as they seem, the level of social conflict is likely to increase dramatically. At the same time, he must continue to negotiate legislative support for his ambitious reform package, which initially appears to be based on the possibility of an “anti-Peronist” front, as seen first in the Senate and at the commission level in the House of Representatives later. How much will society accept that they voted for an orthodox savings plan that directly affects their purchasing power? Will the charismatic libertarian manage to retain public support or convince his voters that excruciating pain is a necessary condition for economic salvation? How long will Caputo resist this time? And if the plan doesn't work, how much blame can Milei place on the financial trader?
At this point we have many more questions than answers.
This article was originally published in the Buenos Aires Times, Argentina's only English-language newspaper.
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As a former Forbes Latam expert with experience in the markets and richlist teams, I am currently Digital Director at Editorial Perfil, one of Argentina's largest media companies. With a background in sociology, philosophy and economics, I am a trained skeptic with a critical eye on Argentina, Latin America and technology. I am also managing director of the Buenos Aires Times, Argentina's only English-language newspaper.
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