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(Bloomberg) — Libertarian outsider Javier Milei won Argentina’s presidency promising a sweeping restructuring to deal with decades of political mismanagement, a strategy that resonated with a population suffering from a plummeting economy and one of the world’s fastest inflation rates.
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With 99 percent of the votes counted after Sunday’s runoff election, Milei won 56 percent of the vote, compared to 44 percent for Economy Minister Sergio Massa of the current left-wing Peronist coalition, according to the official electoral authority. The magnitude of his victory is unforeseen and Massa accepted before the consequences were made public.
“Today begins the reconstruction of Argentina,” Milei told a cheering crowd at his crusade headquarters in Buenos Aires, as his supporters invaded the capital waving the national flag. “There is no room for incremental measures. “
The result gives Milei a mandate to deliver on his election promises, adding the abandonment of the peso in favor of the U. S. dollar and the closure of the central bank, while embarking on drastic cuts in public spending in a bid to lift the country out of 46 million more people. to get people out of their discomfort.
Still, Milei’s surprise treatment puts Argentina on a path of deep uncertainty, and some economists warn that dollarizing a $622 billion economy at a time when foreign reserves are depleted could push the South American country into a new crisis of hyperinflation.
Meanwhile, International Monetary Fund officials have called on the next government to temporarily revive the economy, emphasizing that now is the time for slow policies. IMF Managing Director Kristalina Georgieva congratulated Milei on X in the fund’s first official comments since the election, saying “We look forward to working strongly with him and his administration. “
Read more: How Argentina’s Economy Is Doing and Those Six Charts Show How
“Argentines have chosen another path,” Massa told supporters, calling on Milei to meet with President Alberto Fernandez, ensure the economic and political certainty of the transition and give the country institutional direction. Milei is expected to take office on Dec. 10.
The fact that Argentines have opted for a radical replacement of the continuity presented through Massa and the once-victorious Peronist movement is a testament to the pain they feel as inflation gallops toward 143%, robbing them of their purchasing power.
What Bloomberg Economics says
“Milei’s ambitious vision of a dollarized, small-state, market-friendly Argentina will, despite everything, be put to the test. She still wants to explain the calendar and procedure of dollarization, which, with negative reservations, does not seem feasible in the short term. His gigantic victory provides him with the political capital necessary to advance his economic program, but it does not protect him from the political prices related to the measures he will have to implement to fulfill his promises.
— Adriana Dupita, Latin American economist
– Click to view the full report
Attention will now focus on how Milei implements its maximum debatable measures with a handful of representatives in a fragmented congress and an impatient electorate, with more than 40% of Argentines below the poverty line.
Prior to this, the central bank had almost exhausted its foreign exchange reserves to prop up the peso, so a sharp devaluation of the currency is expected at any time. Monday is a holiday in Argentina, but the country’s offshore assets will be traded in foreign currency. markets.
Click to watch an August Bloomberg Television interview with Javier Milei
“An era of long uncertainty is beginning,” said Daniel Kerner, director for Latin America at Eurasia Group. “Milei doesn’t have a team and his plan is very complicated to implement. And it will have a very mobilized opposition from the beginning. “
Chainsaw cuts
Milei, 53, a former lawmaker with no experience in the executive branch, built his calendar by tying Argentina’s history of peak inflation to the decline of political elegance through profanity-laden tirades on TV shows. Illustrating his promise to drastically reduce the state, Milei has said he will smash it wielding a chainsaw in mass street demonstrations, which has become a symbol of his challenge to the prestige quo.
Despite his non-existent party structure, Milei emerged victorious in the August primary, impacting the political status quo and revealing the extent of voters’ anger against their existing leaders. His victory unleashed an alarmist crusade through Massa that overturned the result. of October’s first-round primaries, when former President Mauricio Macri’s main pro-business bloc, now led by Patricia Bullrich, was eliminated.
Bullrich then supported Milei, who had a narrow lead over Massa heading into the second round. Milei managed to form a unified Peronist movement that mobilized his formidable political system to try to retain power, but the scale of Argentina’s economic difficulties was too great for Massa’s government. presidential candidacy.
Click to watch the interview in Spanish.
China, Brazil
The victory of the free market theorist is at the same time a loss for Brazil and China, Argentina’s two main trading partners. Milei has said in his crusade that he will freeze relations with the economic powers because they are “socialist. “
Milei went so far as to call China a “killer” and later clarified that it would continue to allow a relaxed industry among private companies, illustrating the challenge it faces in turning its crusading rhetoric into reality. The total value of the industry with China and Brazil was about $55 billion last year, just three times the price of the industry with the United States, Argentina’s third-largest trading partner.
Brazilian President Luiz Inácio Lula da Silva, who has been a vocal supporter of Massa, wished good luck for the new government without mentioning Milei in a post on X, the former platform known as Twitter: “Brazil will be in a position to work with our Argentine brothers,” he said. Donald Trump and Elon Musk were among those who congratulated Milei.
Single and with a circle of dogs named after economists, Milei will be the first officially trained Argentine economist elected to this position, qualifications he will want to take on in the mammoth task of repairing the crisis-prone country when he takes office.
Argentina will face $22 billion in foreign debt payments next year, adding interest owed to foreign bondholders and the IMF, which will require “a gigantic existing account surplus as a component of a stabilization plan,” according to Martin Castellano, director for Latin America at the Institute of International Finance.
The fate of Argentina’s $43 billion program with the IMF now rests with Milei. The program, one of the few external financing resources for Argentina, is far from on track as Massa has failed to meet any of the key objectives that are very important. that the IMF should continue to disburse money.
–With Scott Squires, Walter Brandimarte and Julia Leite.
(Adds official IMF comment to sixth paragraph. )
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