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Voters rolled the dice against a radically stubborn foreigner to fix an economy hit by skyrocketing inflation, giving Milei, an economist and former television commentator, a clear victory with 56% of the vote.
He turns out to have managed to tame a wave of public anger opposed to the Argentine political current.
“Today the impoverished style of the omnipresent State ends, which benefits a few while the majority of Argentines suffer. . . Today we return to the path that made this country great. Today we embrace the concepts of libertarianism.
Milei’s rival, Economy Minister Sergio Massa, agreed before the official effects were made public.
In a speech that obscured his centrist views on Milei, Massa said Argentina “hoped” that the new president would “bring certainties and promises for the functioning of political, social and economic systems. “
However, it was Milei’s promise to turn things around that seemed to have drawn those celebratory supporters to his camp.
“Argentina needed a replacement and that’s why I’m betting on this new proposal. “
“I need a relief for my country that I love deeply and that we are suffering many years of decline and that for me, to be an intelligent option, is no longer the same. Enough with Peronism, we already know them.
The demanding situations Milei faces are enormous:
From the empty coffers of central banks, to a $44 billion debt program with the International Monetary Fund, to inflation reaching 150%.
This is economic shock therapy, with plans to close the central bank, abandon the peso in favor of the dollar and cut spending, pushing for minimal state intervention, in line with the libertarian spirit.
He used to use a chainsaw as part of his planned cuts, but ditched it in recent weeks in favor of a more restrained image.
The eccentric 53-year-old is also staunchly anti-abortion, supports a more lax policy and has criticized the progressive Pope Francis.
Milei faces a fragmented Congress, with no bloc holding a majority.
This means you’ll want other factions to pass laws.
After the first round in October, Milei entered into an uneasy alliance with the country’s conservative bloc.
That helped him win the midterm electorate on Sunday.
By Hernán Nessi and Eliana Raszewski
BUENOS AIRES (Reuters) – Argentina’s Libertarian President-elect Javier Milei has won a hard-fought election. Now comes the hardest part: managing crises.
Inflation is at 143%, net foreign exchange reserves are in the red, savers are abandoning the peso, and a recession is looming (if it hasn’t already). Four out of ten Argentines live in poverty and a sharp devaluation of the peso is likely.
Milei, who suffered economic surprises such as central bank closures and dollarization, won Sunday’s runoff with about 56% of the vote, rivaling Sergio Massa’s 44%.
Milei now faces the daunting challenge of reversing the economy once he takes office on Dec. 10. Failure could lead the already suffering country to suffer a tenth default on its sovereign debt, greater poverty and imaginable social unrest.
“It’s an economy in intensive care,” said Miguel Kiguel, a former undersecretary of finance at the Economy Ministry in the 1990s.
INFLATION
Argentina’s higher inflation rate creates huge distortions in markets and for consumers, and prices change weekly. A survey of central bank analysts forecasts inflation of 185% through the end of the year.
“One of the biggest challenges for the next administration will be to correct the distortion of relative value that the economy is experiencing today,” said Lucio Garay Méndez, an economist at consulting firm EcoGo.
“In a context of peak inflation and a stabilization plan, a correction is inevitable. “
In a bid to curb inflation, Argentina’s central bank raised the benchmark interest rate to 133%, encouraging savings in pesos but hurting credit and economic growth.
WEIGHT CONTROLS
The Argentine peso has been subject to capital controls since the 2019 stock market crash, which led to a variety of confusing exchange rates, where the dollar trades at a value well above twice the official level, close to 350 to the dollar.
The most popular unofficial exchange rates come with the “blue” dollar, the MEP and the first-class swaps, the demand for dollars through parallel channels has over time generated dozens of other exchange rates, adding the “Coldplay dollar” and the “Malbec dollar”.
Milei has pledged to remove capital controls and eventually dollarize the economy, while a sharp devaluation will most likely occur in the short or long term to bring official and parallel rates closer together.
CENTRAL BANK RESERVES
Argentina’s central bank’s foreign exchange reserves are near their lowest point since 2006 and, on a net basis, analysts consider them to be in negative territory after a primary drought hit exports of key currency crops such as soybeans, corn and wheat.
The low reserves threaten the country’s ability to pay its debts to its main creditors, the International Monetary Fund (IMF), and its personal bondholders, as well as to cover its main imports. Argentina will have to renew its worn-out $44 billion IMF program.
The government agreed to a lengthy currency exchange with China to cover some of its costs, and had to delay some invoices to key trading partners such as Brazil.
RECESSION
Latin America’s third-largest economy is on track to contract by 2% this year, according to the central bank’s latest survey of analysts, partly due to the effect of the recent drought that halved corn and soybean harvests.
Coupled with triple-digit inflation, this threatens to worsen poverty levels, as two-fifths of the population already lives below the poverty line as wages and savings erode.
Silver linings?
Argentina, in grains, shale gas and lithium, could see a boom next year, thanks to higher rainfall supporting crops, a new pipeline reducing reliance on expensive imports and growing demand for lithium needed for electric vehicle batteries.
Soybean and corn harvests are expected to be better, generating much-needed foreign exchange.
“The harvest will generate a greater flow of profits to the economy, as will increased production from Vaca Muerta,” said Eugenio Mari, lead economist at Fundación Libertad y Progreso.
(Reporting via Hernán Nessi and Eliana Raszewski; editing via Adam Jourdan, Daniel Wallis and Chris Reese)