Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Javier Milei may have won an unexpectedly large majority in Argentina’s presidential election but the self-declared “anarcho-capitalist” faces huge obstacles to implementing his radical programme to shrink government and dollarise the economy.
Argentina’s dire state, with inflation running at 143 per cent a year, a wildly unrealistic official exchange rate and unsustainable public finances, would pose a daunting challenge for any new head of state.
But Milei, a first-term legislator with no executive experience, is far short of a majority in congress. His insurgent party La Libertad Avanza, hobbled in October’s congressional elections by a lack of nationwide organisation, will hold just 39 seats in the new lower house out of 257. In the senate, which renews a third of its members every two years, the position is even worse: Milei only has eight out of 72 seats.
“Milei will take office as the weakest president in Argentina’s history, despite his clear victory in the second round,” said political analyst and consultant Sergio Berensztein, noting the president-elect’s “very small bloc” in congress. “The first question for governability will be the system of alliances and pacts which Milei will construct.”
Polls suggested that many of Milei’s wilder libertarian ideas, such as allowing the sale of human organs, were unpopular with Argentines. What resonated strongly was his appeal to reject the entire political class, which has failed voters consistently since the South American nation returned to democracy in 1983.
The paradox is that Milei now needs the support of at least part of that political class to govern.
Former centre-right president Mauricio Macri has already lent his support to the president-elect. This could ensure a lower house majority, if all the legislators from Macri’s fractious coalition Juntos por el Cambio were to follow his lead, something which is not guaranteed. Even then, Milei would still need a few votes from the defeated Peronists or their allies to pass measures in the senate.
This means that many of the president-elect’s more radical proposals, such as closing down the central bank or replacing the peso with the US dollar, are unlikely to see the light of day, at least in the short term.
Indeed Milei has already backed away in the final weeks of the campaign from his more unpopular ideas in order to get elected. He promised in his final campaign video not to privatise education or health, not to abandon gun controls and not to allow the sale of human organs. With an eye on the national passion, he also pledged not to privatise football.
In his victory speech on Sunday night, Milei swung back to vowing “drastic change, without gradualism”, though he did moderate some of his language to speak of “fixing problems” at the central bank, rather than burning it down.
“Milei has a big responsibility and we will have to see which of his two sides we get,” says Carlos Malamud, chief researcher at the Elcano Royal Institute in Madrid. “The one he espoused during his whole political career or the one which was capable of negotiating ahead of the second round of the election . . . He will have to make pacts with Macri and others.”
Latin American presidents who lack congressional majorities have often fared poorly, even in much better economic circumstances than the ones Milei faces. Many have failed to finish their terms. Milei’s eccentric and sometimes irascible personality could pose an additional hurdle for the weeks of patient negotiation that lie ahead to build a legislative majority.
By far the biggest challenge is the economy. Voters were seduced by the television chat show economist’s pledges to kill inflation and end the privileges of the political class. It remains to be seen how enthusiastic they will be about the cuts to public sector jobs or reductions in generous energy subsidies and welfare programmes that are needed to balance the budget.
Despite Milei’s ostensibly market-friendly programme of cutting spending by 15 per cent of gross domestic product, investors have been jittery about the risks for governability, particularly in a country with Argentina’s history of strong labour movements and social protest.
Milei knows he probably only has one shot at getting the economy right. Were his plans to fail, the formidable Peronist political machine would be waiting in the wings to capitalise swiftly on his misfortune.
Sergio Massa, the Peronist economy minister and defeated presidential candidate, is likely to make a hasty exit after his drubbing at the polls. Reports were already circulating in Buenos Aires on Sunday night that Massa would be taking a “leave of absence”, rather than stay on to manage what could be a messy transition to the new government on December 10.
Milei has set himself a high bar from the start. “What we are going to do is end inflation forever,” he pledged in his final campaign message.
The immediate challenge is more prosaic: to prevent a slide into hyperinflation. An unwieldy web of price controls and subsidies cobbled together by Massa to keep a lid on inflation expires with the election, a big devaluation is inevitable and the incumbent Peronists have few incentives to guarantee stability ahead of the new president’s inauguration.
Even if Milei jumps that hurdle, there are plenty more to come. Argentina’s $44bn debt with the IMF needs to be renegotiated and its 2020 agreement with private creditors also looks unsustainable. Massa will bequeath a vast pile of domestic debt, much of it earning triple-digit interest rates.
“Don’t be scared,” Milei urged voters in his final campaign video. Argentines have plumped for a bold leap into the unknown. They might be forgiven for feeling more than a little trepidation about what comes next.
michael.stott@ft.com
Read the full article here
