Aug 19, 2023 - Economy & Business

Argentina has a new anarcho-capitalist disruptor

Javier Milei

Photo: Luis Robayo/AFP via Getty Images

Argentina is back in a familiar position of being a fiscal and economic disaster zone.

Why it matters: The disarray there has ushered in a classic chaos agent, in the form of a right-wing economist who is now the favorite to win Argentina's presidency in November.

Driving the news: Argentina's torrid economic conditions — inflation in triple digits, recession looming, a drought hitting exports — paved the way for Javier "El Loco" Milei to win a key presidential primary last week.

  • Like former Ecuadorean president Abdalá "El Loco" Bucaram, Milei is running on a platform of dollarizing the economy — effectively abolishing the local currency.
  • Unlike Bucaram, however, Milei — armed with an outsider's righteous zeal and a hairdo described by the WSJ as looking "like a musk ox crossbred with Ozzy Osbourne" — is running as an ultra-libertarian.
  • He wants to abolish not only the central bank ("the worst garbage that exists on this Earth") but also the health, education and environment ministries.

The big picture: The chaos in Argentina is nothing new. The country has already defaulted on its foreign debt nine times — in 1827, 1890, 1951, 1956, 1982, 1989, 2001, 2014, and 2020.

  • A 10th default seems all but certain, given the degree to which the peso has devalued — it's hard to pay dollar-denominated debts when your currency is in freefall.
Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals
  • The chart above is actually artificially sunny — the black market exchange rate (a much better reflection of true supply and demand) is more than double the official rate, and stands at some 710 pesos per dollar — more than 7 pesos to buy a single U.S. penny.

Between the lines: A Milei presidency would be noisy and messy — but it could, weirdly, be a positive force for Argentina, mainly because he doesn't have the support of any major party and therefore wouldn't have the ability to pass radical legislation.

  • While Milei has suggested that he could turn to referendums in an attempt to circumvent the legislature, it's unlikely that his most extreme ideas would attract majority support. (He received only 30% of the vote in the primary, after all.)
  • The presidency does control the finance ministry, however. Milei has named his mastiff clones after his favorite economists — Milton Friedman, Robert Lucas, and Murray Rothbard — and his economic policy is largely in line with orthodox conservative principles.
  • Rather than inveigh against foreign vultures, for instance, Milei has vowed to pay Argentina's debts and generate 200% returns for bondholders.

The bottom line: Dollarization — probably combined with a relatively creditor-friendly debt restructuring — is no panacea. But it could at this point be the least-worst outcome for Argentina.

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