Argentina's Paradigm Shift
Javier Milei’s victory over the Peronist‐party candidate in Argentina’s presidential election Sunday was crushing. Milei won by 11 points and in almost all electoral districts. He received the support of young people and of all socio‐economic classes, including strong support from the middle and lower classes.
He did so with a message that, for the first time in almost 80 years, did not propose to simply adjust the corporatist, client‐patron system imposed by Juan Domingo Perón, but to dismantle it completely because it is impoverishing and immoral. In clear language, Milei proposed a paradigm shift: to return Argentina to the classical liberal tradition that made that country one of the richest on the planet a century ago.
His campaign speeches focused on the importance of freedom, long lost under the weight of an oversized Argentine state. Before a national public, he incessantly repeated his definition of liberalism (in the classical sense), borrowed from the distinguished Argentine liberal Alberto Benegas Lynch Jr., whom he cites as a sort of national hero: “Liberalism is the unrestricted respect for the life project of others based on the principle of non‐aggression and the defense of the right to life, liberty, and private property.”
Guided by this vision, Milei proposes to shrink the state and expand the role of the private sector and civil society. In practice, he proposes a significant reduction in public spending and taxes; dollarization and the elimination of the central bank; free trade; the elimination of bureaucratic obstacles; the reform of public administration; labor sector flexibility; and education reform that includes increased competition and school vouchers, among other proposals.
Will he be able to accomplish this ambitious agenda? It will not be easy. The economy is in crisis and the outgoing government has left an economic time bomb that any incoming government would have to deal with. Argentina has an annual inflation rate above 140 percent, a fiscal deficit exceeding 5 percent of GDP (or about 10 percent of GDP depending on how it’s measured), poverty above 40 percent of the population, a bankrupt central bank, interest rates over 130 percent, government debt at an all‐time high, a recent splurge in public spending, debt payments coming due soon, and a shrinking economy. Any adjustment—which will include significant hikes in the price of gasoline, electricity, transportation, and so on—will be harsh.
Moreover, Milei does not have the support of Congress. His party has only thirty‐eight deputies in a chamber of 257 deputies. Of the seventy‐two senators, only seven are from his party. His possible coalition also falls short of a majority in the Chamber of Deputies or the Senate. Milei has a popular mandate and will try to use it to promote his agenda. But it is a given that the opposition will obstruct him in the legislature, in the courts, and in the streets. He will face obvious political limits on what he can achieve.
But he will be able to make important changes. As president, he can repeal some of the previous government’s regulations. He can free up prices by decree and, in due course, get rid of capital controls. He can cut some subsidies and reduce the number of ministries by decree.
Will he be able to carry out the main economic proposal of his campaign—that is, to replace the peso with the dollar? That too will have to go through Congress. But as the economic crisis worsens, the reform will become more politically feasible. As Milei and his team well know, dollarization is a fundamental reform because it eliminates irresponsible monetary policy, puts some limits on reckless fiscal policy, and forms the basis for other necessary reforms.
If Milei were only able to implement dollarization, it would be a great achievement. What Milei has already accomplished, however—articulating a clear, liberal alternative to Peronism with popular support and electoral success—represents a remarkable change in a country that really could be great again.
Note: This article is based on a version that was originally published in El Comercio (Peru) on November 21, 2023.