Argentine president-elect Javier Milei speaks to supporters after winning Argentina’s runoff presidential election, in Buenos Aires, Argentina on November 19, 2023.
Agustin Marcarian | Reuters
Argentina’s libertarian economist Javier Milei took office on Sunday warning in his first speech that he had no alternative to a sharp, painful fiscal shock to fix the country’s worst economic crisis in decades, with inflation headed at 200%.
“There is no alternative to a shock adjustment,” he said on the steps of Congress after taking the presidential baton and sash, with crowds of supporters cheering despite Milei saying the economy would worsen in the short term. “No money.”
Milei, 53, a former TV pundit who rose to fame with slurs against rivals, China and the pope, took over from Peronist leader Alberto Fernandez, whose government has struggled with failures to curb the rising prices.
“The outgoing government has left us on the path to hyperinflation,” Milei said. “We will do everything to prevent such a disaster.”
Although the speech was light on details, he said the main measures would include a fiscal adjustment equal to 5% of the country’s GDP through cuts that he said would fall on “the state and not the private sector .”
The wild-haired outsider marks a big gamble for Argentina: his shock therapy economic plan of sharp spending cuts has gone down well with investors and could stabilize the troubled economy, but it is at risk to push more people into poverty than the two-fifths who are in poverty.
However, voters – who propelled Milei to victory in a November run-off against a ruling Peronist coalition candidate – said they were ready to roll the dice on his sometimes radical ideas that include closing the central bank and dollarization.
“He is the last hope we have left,” said 72-year-old doctor Marcelo Altamira, who criticized “useless and incompetent” governments during years of boom-bust economic crises. . The outgoing Peronist government, he said, had “destroyed the country.”
Boom and bust
The challenges are enormous. Argentina’s net foreign currency reserves are estimated at $10 billion in the red, annual inflation is 143% and rising, a recession is imminent and capital controls skew the exchange rate.
Argentina has gone through boom-bust cycles for decades printing money to fund regular deficits that fuel inflation and weaken the peso. That has worsened in recent years as reserves dwindled with a major drought earlier this year hitting key cash crops soybeans and corn.
If left unchecked, inflation could reach 15,000% annually, Milei warned in his speech, vowing to “fight tooth and nail” to eradicate it. He also warned of a $100 billion debt “bomb.”
The major exporter of grains will have to revise a burgeoning $44 billion loan program with the International Monetary Fund (IMF), while Milei will have to navigate relations with key trading partners China and Brazil, which he has criticized during the campaign.
Milei takes over from unpopular outgoing center-left President Alberto Fernandez, but will have to negotiate with rivals as his libertarian coalition has only a small bloc in Congress. He allied himself with the main conservative group.
There has already been an impact. He moderated his tone in the past few weeks, filling his first Cabinet with mainstream conservatives rather than libertarian ideological allies, and putting more radical ideas like dollarization on the back burner.
That helped stimulate markets and reassure voters.
“I think he will do well. For legal and Congressional reasons, he will have to focus on more coherent things,” said Laura Soto, 35, a restaurant employee in Buenos Aires.
He said some of the more radical social ideas he discussed during the campaign are also unlikely to happen, including easing gun regulations and reopening the debate on abortion, which was legalized in Argentina three years ago. years ago.
‘Change is needed’
To fix the economic mess, Milei chose mainstream conservative Luis Caputo to head the economy ministry, with a close Caputo ally, Santiago Bausili, as head of the central bank.
Milei is expected to lay out a more detailed economic plan on Tuesday or Wednesday, sources from his team told Reuters.
Guests of the ceremony included Ukrainian President Volodymyr Zelenskyy, Hungarian Prime Minister Viktor Orban and a US delegation.
Brazil’s right-wing former leader Jair Bolsonaro was also in attendance, as was Uruguay’s conservative leader Luis Lacalle Pou. Chile’s leftist President Gabriel Boric was also present but leftists Luiz Inácio Lula da Silva of Brazil and Mexican Andrés Manuel López Obrador were some of the main absentees.
In a sign of the challenges ahead, state energy firm YPF raised petrol pump prices this week by an average of 25%, with analysts and markets expecting a sharp devaluation of the overvalued peso currency shortly after Milei sat down.
“We know in the short term the situation will worsen but then we will see the fruits of our efforts,” said Milei. “We neither seek nor desire the difficult decisions that will have to be made in the coming weeks, but unfortunately we have no choice.”
