Argentina’s Milei at the 100-day mark

Items

• Javier Milei: profile of an outsider

  Patrick de Courcy 27 March 2024 Hits: 2649

  Javier Milei took office as president of Argentina on 10 December 2023, at the start of a four-year term. It is safe to say he is not a typical product of the country’s long standing political establishment. He had only become a full-time politician two years earlier in 2021 when he became a deputy for the city of Buenos Aires. The son of a bus driver, he had an unhappy childhood but was very close to his younger sister Karina, who remains one of his key political advisers. In his youth he played fourth-division football for Chacarita Juniors and was a member of a rock band which performed Rolling Stones covers in the Palermo neighbourhood of Buenos Aires.

  An economics graduate from Universidad de Belgrano, he studied postgraduate economic theory at think tank IDES and at Universidad Torcuato Di Tella. He went on to teach economics at various universities where many students found him to be an abrasive and sometimes provocative figure. Among other jobs he worked as an economist for HSBC and for AFJP Máxima, a private pension fund. From 2010 onwards he began an important side-career as a media economist known for his radical free market positions and his frequent attacks on lax fiscal policies. Ideologically he aligned himself against Keynesianism and in favour of monetarism, particularly of the Austrian school. He self-defined himself as a “libertarian Austrian, based on mathematics and specialising in money and growth”. More pithily has also called himself an “anarcho-capitalist”.

  During the 2023 campaign Milei adopted a dramatic persona, brandishing a chainsaw as a symbol of his intention to cut state spending and bureaucracy (in speeches he said he would slash government spending by as much as 15% of GDP). The candidate also defended socially conservative positions, for example by opposing abortion and gender politics. He described Argentina’s political establishment as a self-serving “caste” which had mired the country in corruption and economic stagnation. On the long term he also promised to usher in other radical reforms such as dollarisation and the closure of the Central Bank. Broadly speaking, economists shared his focus on the need to eliminate the country’s perennial fiscal deficit but were much more sceptical on dollarisation and his defence of extreme forms of laissez faire.

  It has been argued that Milei’s angry, critical persona, including his expletive-rich speeches, was highly functional to winning the elections. He tapped into a sense of rage. Many voters, and particularly young males, remain deeply alienated over the economy and the weakness of the country’s institutions. A survey conducted in December by a group of academics found that Milei’s core voters are conservative young men with strong pro-market preferences, opposed to the pace of change on gender issues, abortion, and gay marriage. They also believe taxes cause job losses and social welfare programmes should be restricted. The survey revealed that male voters aged 18-25 are now more conservative than those in any other age group.

  When considering the new president’s first 100 days in office, a number of analysts have questioned whether the qualities that helped him win the election will be an asset or a liability as he confronts the rather different task of running the country. Indeed, Milei won the elections on a largely negative campaign, accusing the government and the establishment of destroying the economy. Now in office, particularly given his lack of a congressional majority, some believe the president needs to build bridges and coalitions to make the changes he has promised. As we shall see, there is a belief that Milei has erroneously continued in full adversarial election mode – denouncing and criticising not only opponents but also his potential allies.

• What’s the mandate? The 2023 elections

  Patrick de Courcy 27 March 2024 Hits: 1718

  Presidential and legislative elections were held in late 2023 against a background of rising tension over the economic crisis, crime, and corruption. From an early stage in the race, it had become evident that a major and highly consequential shift in Argentina’s political landscape was underway. For decades Argentine politics had been a struggle between two major groups, the centre left and populist Peronist movement (Partido Justicialista) on the one hand, and a traditional centre-right grouping, led by parties such as Propuesta Republicana (PRO) on the other. The fissure between these two camps (described locally as la grieta) has been seen as an enduring and toxic fault line running through Argentine politics and society, felt by many to be a needlessly partisan and polarising phenomenon.

  That said, the 2023 elections revealed that the electorate was evolving from a two-way to a three-way split. In the first round of the presidential race held on 22 October, the most voted candidate was economy minister Sergio Massa of the incumbent Peronist-led centre-left coalition, Unión por la Patria (UP), who took 36.8% of the total. Second place was seized by the new and rising ‘third force’ candidate Javier Milei, of the far right La Libertad Avanza (LLA) party. As an outsider he won an unprecedented 30.0% of the total vote. Patricia Bullrich, the candidate of the traditional centre-right coalition Juntos por el Cambio (JxC) was pushed down into third place with 23.8% of the vote. Under existing electoral regulations, that meant a run-off would be held between Massa and Milei. With Bullrich now endorsing Milei (in exchange for a promise of a job as security minister in the new government) it ended up being the outsider candidate who seized the ultimate victory. In the second ballot, held on 19 November, Milei won with 55.7% of the vote, against 44.4% for Massa.

  As a result of the elections the composition of congress also moved a little closer to a three-way split. Milei’s LLA secured 38 seats in the 257-seat lower house, giving it no more than a minority presence (15% of the available seats). However, it also has allied parties including the PRO and a few smaller groupings which takes its total up to 80. The pro-dialogue opposition, which includes the centrist Unión Cívica Radical (UCR) and a range of provincial parties, controls a further 73 seats. The Peronist-dominated Unión por la Patria (UP) and its left-wing allies form the hard opposition with 104 seats. In short, no single block controls a majority (for which 129 seats are needed). To get legislation approved Milei therefore needs to strike deals, most likely with the pro-dialogue opposition parties. The situation in the 72-seat senate is similar, with no party holding a majority.

  Composition of Congress

  
  

• Opinion polls harvest data on popular frustration

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  As we have noted, the 2023 elections came at a moment of widespread voter dissatisfaction and growing anger with politicians. A wide range of opinion polls captured a deep sense of frustration over the quality of life and a belief that a corrupt establishment elite was driving the country down in pursuit of its own privileges and wealth. A poll by Gallup across several Latin American countries in late 2023 revealed that respondents in Argentina were the gloomiest, with 62% believing economic conditions in the country were getting worse, against only 27% who felt they were getting better.

  

  Source: Diplomatic Courier

  The Gallup poll found that pre-elections confidence in the government had plunged to a record low of 28%, with 70% of respondents saying they did not trust it at all. As such, it was similar in findings to many other surveys, which have detected a deeply rooted lack of trust in government and institutions.

  

  Source: Diplomatic Courier

• A thousand reforms, but doubts over implementation

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  The new administration has not lacked for ideas but has been less successful in its efforts to persuade an opposition-dominated congress to give those ideas a green light. One of the Milei administration’s first moves was to use an existing procedural rule to temporarily (and legally) side-step congress. This was achieved by introducing DNU 70/2023, a “decree of urgency and necessity” (Decreto de Necesidad y Urgencia, DNU) which contained no less than 366 specific measures. Signed on 20 December – just ten days after Milei took office - the DNU can be seen as a wide-ranging enabling law. It cancels 80 pre-existing laws and over 300 regulations, prohibitions, and limitations on business activities, simplifies administrative procedures, and seeks to weaken the power of trade unions over their members.

  DNUs delegate powers to the presidency for a specific period of time (in this case, two years). They are allowed in emergency situations only, and they must be accepted or ultimately rejected in their entirety, without the possibility of line-by-line amendments. They can only be rejected by a majority vote in both houses of congress. DNUs are also subject to legal challenge; in fact, a labour court promptly rejected the DNU measures on trade union power, as unconstitutional, saying any changes to labour law would have to be submitted to congress in the normal way, and not through the DNU procedure. The northern province of La Rioja has also challenged the DNU on procedural grounds in a filing to the Supreme Court.

  While the DNU came into effect in December, at the point when the new president signed the decree, the possibility of it being rolled back remained significant. Indeed, on 14 March the senate voted 42-25 against the decree with four abstentions. On its own this was insufficient to reverse the decree. As we have seen, a similar vote in the lower house would be needed to force the termination of the DNU. Milei responded by re-posting social media messages describing those who had voted against the DNU as being “traitors to the motherland”. There was also speculation over tensions within the government, itself with internal criticism of Victoria Villaruel, LLA senate leader and vice president, for having accepted opposition requests for a debate on the DNU. Presidential spokesman Manuel Adorni found himself forced to tell a press conference “there is no internal fight or conflict involving the vice president”.

• Omnibus reform law placed on hold

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  Earlier, the new government’s major reform vehicle had also run into trouble. This was an ‘omnibus’ law with 664 articles or individual reform proposals. It is formally known as the Ley de Bases y Puntos de Partida para la Libertad de los argentinos (which could be loosely translated as ‘Law of Bases and Points of Departure for the Freedom of Argentines’). Unlike the DNU it can be amended by legislators in both houses on a line-by-line basis, thereby triggering complex negotiations to get it approved. Like the DNU, but covering slightly different areas, the omnibus law contained wide ranging measures including fiscal reforms, the privatisation of state-owned companies, and electoral reforms. In a first move to try and get it approved the government agreed to drop the fiscal measures in it, such as increased soya and payroll taxes, and inflation-indexing for pensions. These and the electoral reforms were also shunted sideways, to be dealt with separately in the legislature. Other elements were also dropped, with the number of articles being pruned back radically from 664 to 224.

  But even with that pruning, it became evident that the government simply lacked the necessary congressional support. An initial Chamber of Deputies vote on the bill “in general” on 2 February mustered a majority of 144-109 in favour. The next step would have been for the bill to be voted on “in particular”, but, aware that it was short of support, on 6 February the ruling LLA party withdrew the bill back to the committee stage where it has since remained parked. The parties that lined up to support the proposal “in general” included the right wing LLA and PRO, but also the more centrist Unión Cívica Radical (UCR), Hacemos Coalición Federal, and Inovación Federal. The centre left Peronist Unión por la Patria (UP) on the other hand, acting together with left-wing parties, voted against.

  A key feature of this failed first attempt to build a consensus was Milei’s continual high-profile attacks on parties and politicians who he might need as potential allies and for coalition-building purposes. From an early point the president called those who had voted against the omnibus law “traitors”. Although officials in his government were clearly talking to politicians across the spectrum, Milei repeatedly claimed he was not negotiating and would continue with his plan “with or without the political leadership that destroyed Argentina”. Lists of deputies who voted against the omnibus law were published with accompanying mugshots made to make them look like criminals. In addition, interior minister Guillermo Francos suggested bypassing congress with a non-binding referendum.

  A number of analysts have concluded that Milei has at least considered a Plan B which would involve delaying reforms until after the mid-term congressional elections due in 2026. In that scenario the government would highlight and criticise the political establishment for its resistance to meaningful reforms, hoping that in the mid-terms the government would increase its electoral appeal and thereby come closer to achieving the congressional majority it needs to back structural reforms. This could explain why Milei appears to be deliberately polarising the debate and criticising potential allies. However, waiting until 2026 to pursue meaningful reforms can also be described as an extremely high-risk strategy. It has to be born in mind that the hoped-for macro-economic stabilisation, with an economic recovery starting in 2025-2026, is at this stage far from guaranteed.  

  Short-term relations with Argentina’s 23 provincial governors took a rapid turn for the worse because of their opposition to the omnibus bill. The ruling LLA controls no governorships; on the other hand, there are 10 provincial administrations who form part of the pro-dialogue opposition, alongside others controlled by the Peronists and by provincial parties. In the omnibus law the new president had sharply cut back federal funding for the provinces and was also promising to eradicate semi-autonomous fiduciary funds which ease provincial financing. Milei called them “black boxes” suggesting they were tainted by corruption. The governors were in effect being targeted because, through their representatives in the lower house, they had opposed the omnibus bill.

  The PRO governor of Chubut province (Ignacio Torres) threatened to cut off oil and gas supplies to the rest of the country if the government did not reinstate funds from federal taxes that had been abruptly withdrawn. The Peronist governor of Buenos Aires province (Axel Kicillof) filed a complaint with the Supreme Court against a federal government decision to eliminate a pre-existing “fiscal strengthening fund” for the province.

• Provinces express concern over May Pact

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  Uproar over the relationship with the provinces, coupled with wider protests by labour unions, seem to have persuaded Milei to make a new attempt to get his reforms approved in a slightly more consensual manner. In a speech to congress at the beginning of March the president launched a new initiative, to be known as the “May Pact”. The idea is that in the run-up to 25 May (the anniversary of Argentina’s independence from Spain) a group including all 23 governors, the mayor of Buenos Aires city, former presidents, and other political leaders will discuss a government proposal to agree 10 “strategic” pillars for governance. However, the government position remains that, as a precondition, congress must still approve the omnibus law before the provinces sign off on the May Pact.

  The government proposed ten May Pact points for discussion. These include the inviolability of private property; a “non-negotiable” agreement to balance the budget; a commitment to reduce public expenditure to 25% of GDP (it is currently over 37%); a reform to reduce the tax burden; and a renegotiation of the coparticipación system (which governs the allocation of federal and provincial funds). Also on the list are provincial commitments on the development of natural resources; a labour reform to promote formal employment; and pension reform. Milei also promised what he called an “anti-caste package” which would eliminate pension privileges for political leaders, require transparent trade union elections, and end state funding of political parties.

  Despite this offer of consensual talks, the mood music between the president and the provinces remained tense. In widely reported comments Milei said on 6 March that he would “piss on all” of the provincial governors who were reluctant to adopt his reforms. He also said, “If they keep on screwing around, I will shut down congress”. Despite clear constitutional limits on presidential power, Milei repeatedly suggested his government might side-step congress. He said for example that “We won’t back down, we’re going to keep pushing forward, whether that is by law, presidential decree, or by modifying regulations.”

  For their part, many of the governors also refused to ease the pressure. Santa Fé governor Máximo Pullaro (UCR) said his province would “not be extorted” or intimidated. Córdoba governor Martín Llaryora (PJ, Peronist) criticised the long wait until 25 May. Six Patagonian provinces (Chubut, La Pampa, Neuquén, Rio Negro, Santa Cruz, and Tierra del Fuego) said they were prepared to work collaboratively on the May Pact. Yet the governor of one of them, Alberto Weretilneck (of provincial party Juntos JSRN in Rio Negro), said “nobody is motivated by separatism or conflict. But the national government needs to understand that there is no Argentina without Patagonia, because we provide the hydrocarbons.”

• The other story – pleasing the markets

  Patrick de Courcy 27 March 2024 Hits: 1667

  In Milei’s first 100 days in office the media headlines have largely and understandably focused on his running battles with congress, the provincial governors, and both hard and soft forms of political opposition. But there has been another parallel story: some key economic indicators have begun to move in what could be called the right direction causing financial markets to show a degree of optimism about the new president’s ability to turn round the economy. These remain early days and it is not clear whether the improvements are sustainable, but they deserve some detailed analysis.

  Perhaps the single most dramatic change is that in January and February 2024 – Milei’s first two full months in power – the government recorded a fiscal surplus, the first in no less than 12 years. According to a report by the Instituto Argentino de Análisis Fiscal (IARAF) the surplus was achieved through the largest year-on-year spending cuts of the last three decades. For the first two months of the year government primary spending was down by 33.6% in real terms (adjusted for inflation). The biggest falls were registered in transfers to the provinces (down by 65%), goods and services (down 46%), and state pensions (down 39.5%). Because of their large share of the overall state budget, the cut in the real value of pensions was the single most significant saving made at the start of the new government, accounting for 43% of the total reduction in spending. By contrast the reduction in real terms spending on the public sector salaries bill contributed only 5% of total savings.

  The government was relying on what could be called a ‘do nothing’ strategy, simply allowing surging inflation to erode its real spending levels. Following the mega-devaluation of the peso in December, annual inflation had picked up pace to reach 276.2% by end-February. IARAF concluded that pensioners were being forced to make a disproportionate contribution to fiscal austerity, and that congress should legislate to achieve a more equitable contribution to fiscal equilibrium, including a review of tax levels and loopholes.

  The financial press highlighted a number of other positive developments. In 2023 as the result of an unprecedented drought and election-related political uncertainty, net foreign currency reserves had fallen into negative territory. On 11 March, however, the central Bank (BCRA) reported that since the new government took office on 10 December 2023 it had been able to buy US$9.6bn worth of hard currencies, bringing net reserves up to US$8.4bn, ahead of the US$6bn first-quarter target agreed with the IMF. The new government has said that rebuilding hard currency reserves is a key step before eventually re-introducing a freely floating exchange rate. Larger hard currency reserves are also necessary for any future dollarisation plan. In the meantime, the gap between the official exchange rate and the ‘blue’ (free market) dollar, often seen as a confidence indicator, has begun to narrow.

  Blue and official dollar rates converge

  Source: Reuters

  In general, international financial markets have welcomed the first measures taken by Milei, alongside his proposed ambitious and market-friendly reforms. In late February financial analyst Mariano Sardans of FDI Argentina told Reuters news agency that “it seems the market is starting to believe”. Sardans highlighted the short-term elimination of the fiscal deficit, the accumulation of foreign currency reserves, and a move to roll over import debts through the issuance of Bopreal bonds. Another local analyst, Javier Casabal of Adcap Grupo Financiero, said “the market is becoming very optimistic about Javier Milei’s conviction”, adding it was a shift worth celebrating “given that most investors did not have confidence in his ability to reduce the deficit just a few weeks ago”.

  The change in market sentiment (which is of course far from infallible) was evident on international bond markets. Argentina’s sovereign bond prices rose to two-to-four-year highs although they were still trading at only 35-45 cents on the dollar of face value. Argentine risk premiums have fallen during Milei’s first 100 days.

  Risk Premium: EMBI + Argentina
  In basis points

  Source: Alphacast

  The improvement in Argentina’s financial position was underlined by the mid-March announcement of a successful US$50bn peso-denominated bond swap. Economy minister Luis Caputo said the swap totalled ARS42.6tn (US$50.3bn) and represented 77% of treasury securities maturing this year. Analysts said the swap would give the new government some additional breathing space as it sought to control the deficit, reduce inflation, and stabilise the currency. These positives came despite some ongoing concerns over Argentina’s ability to service its debt without recurring to unilateral distressed debt exchanges. Responding to the bond swap US-based agency S&P lowered Argentina’s local currency rating from CCC-/C to SD-SD (selective default) noting “the sovereign’s acute macroeconomic vulnerabilities and limited ability to extend maturities and place paper in the local market without relying on exchanges”.

  While making some changes in the context and framework of inflation analysis, Milei has prepared the ground for a possible good news story on this front too. Under the previous government, and despite a plethora of price controls, inflation pushed up relentlessly to double digit monthly (and triple digit yearly) percentage numbers, destroying the administration’s credibility in the process. Milei appears to have successfully shifted the terms of the debate. From his point of view, when he took office, Argentina was heading for hyperinflation (often defined as inflation of 50% a month or higher). Short term success was therefore redefined as avoiding hyperinflation and achieving a sustainable month-on-month reduction in the rate of price increases, targeting falls of around five percentage points each time.

  In fact, monthly retail inflation peaked at 25.5% in December 2023, the month Milei took office and devalued the official peso rate. It then fell to 20.6% in January and contracted more sharply to 13.2% in February, well ahead of expectations. The official view is that inflation is falling because of the elimination of the fiscal deficit and a credible government commitment not to print money. There are still risks ahead – for example the promised removal of energy subsidies which is expected to lead to major tariff increases in April. But if the government can keep bringing inflation down to single digits it is likely to benefit from improving expectations.

• Milei on the defensive over top salaries

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  Voters do not like hypocrisy among their elected leaders; Milei faced a big political setback in March when he made himself vulnerable to exactly that charge. As part of his campaign to eliminate the fiscal deficit the new president imposed country-wide austerity including public sector wage restraint. There have also been deep cuts in the real purchasing power of pensions and other state benefits. The president has frequently said “there is no money” in response to calls to stop the fall in living standards. Yet, despite this, it emerged that Milei’s own salary had been increased by 48% from just over 4m pesos (US$4,704) a month in January to 6m pesos (US$7,056) in February. Similar increases were paid to ministers and other top officials. Members of congress in turn benefited from a 30% increase. This came to light after members of the hard opposition from the Peronist movement obtained a copy of a presidential decree, signed by Milei, authorising the higher rates.  

  The president went quickly into damage limitation mode. He issued statements on social media saying that he had rescinded the decree and dismissed labour secretary Omar Yasín. In the president’s telling, the fault lay with former centre left president Cristina Fernández de Kirchner (2007-2015) who in 2010 signed a decree automatically increasing the salaries of senior officials to ensure they earned no less than those in more junior positions. Milei said his intention had been to increase the pay of junior officials, and this had led him inadvertently to trigger a corresponding raise for senior officials including himself. He had also rescinded the 2010 decree which he described as designed to “protect the wallets of the caste”. The president added “with each passing day we discover a new law which favours politicians and is prejudicial for the Argentine people…but these things are hidden unless you are an expert”.

  Despite his explanations Milei was unlikely to get off lightly from the incident. It emerged that he had in fact signed two contradictory decrees on top pay increases, in January and in February, one ruling them out and the other ruling them in. Fernández de Kirchner suggested Milei had not actually read the decree before signing it. Milei retorted that she should give up her own generous pension privileges. The controversy was expected to linger on for some time, possibly eroding the president’s approval rating. Christian Buttié of pollster CB Consultora told the Financial Times that “the government has almost no margin for this kind of error, which undermines its narrative over austerity”.

• The crime issue

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  Rising concern over crime has presented the new government with both a challenge and an opportunity. The promise of a major crackdown on drug trafficking and other criminal activities figured prominently in Milei’s election campaign. Patricia Bullrich, the unsuccessful Juntos por el Cambio (JxC) first round presidential candidate and a former security minister, had also promised tough new anti-crime measures as part of her campaign. Her decision, alongside others in her PRO party, to form a coalition with Milei’s LLA and once more become the security minister, therefore set the scene for a new approach.

  The initial focus of concern has been a surge of gang violence in Rosario, Argentina’s third largest city, located in Santa Fé province. Rosario is home to the Los Monos drug cartel. In what appears to have been a deliberate public relations exercise governor Maximiliano Pullaro (UCR) posted a photograph showing senior gang members stripped to their underwear, with their hands handcuffed behind their backs in Piñero prison, 25kms out of Rosario. The photograph resembled those published on social media by Nayib Bukele, president of El Salvador, who has launched a policy of mass incarcerations of suspected gang members, many of whom are held in a new mega-prison. The policy and the way it has been executed, has been widely criticised by international human rights groups but has nevertheless led to sharp reductions in homicide rates and more peaceful neighbourhoods. In El Salvador, as a result of falling crime rates, Bukele’s approval ratings have soared; many politicians elsewhere in Latin America have been keen to emulate his response.

  In the case of Rosario, the governor had been seeking to highlight an improvement in security, with the murder rate falling to seven in February, down from 33 in the same month a year earlier. Apart from publishing the photographs, the authorities restricted family visits and communications in an attempt to prevent gang leaders running their criminal networks from inside prison. However, this clampdown appears to have been counter-productive, at least on the short term. The gangs responded by saying they would murder “innocents” in response to government action, including transport workers and refuse collectors. In the week following the publication of the photographs two taxi drivers, a trolleybus driver, and a petrol station attendant were all shot dead.

  A note was left at the scene of one of the killings for the governor and for provincial security minister Pablo Cococcioni, threatening further deaths. Many schools and other services were forced to close. Bullrich, along with other federal security officials, visited Rosario and promised to send more federal security reinforcements to the city, after an initial group of 450 was despatched. She also said that the government was working on a new anti-mafia law to be sent to congress. She claimed that, had the omnibus reform law been passed, the government would have been able to respond more rapidly. Milei said his government was “declaring war on narco-terrorism” adding “we are not prepared to give an inch; it is us or them.”

  On reflection, the new government’s hard line anti-crime policies appear to be very high risk. The pursuit of a Bukele-style anti-crime crackdown may be ill-advised. It is still not clear whether the improvement in security achieved in El Salvador will prove to be sustainable, or indeed capable of being exported to other countries. Pacification in El Salvador has in any case been achieved at an extraordinary high cost: by jailing around 2% of the adult population – one of the world’s highest incarceration rates - and by suspending key civil rights such as the right to fair trial and to legal representation. Such an authoritarian clamp-down would likely be strongly resisted by civil society in Argentina, and rejected by opposition parties in congress (where, unlike El Salvador, they hold a significant degree of power and influence). It is also worth bearing in mind that pursuing the El Salvador security model does not mean Argentina will necessarily turn it to its advantage. There are many and much less attractive Latin American security models that the country could find itself inadvertently following. Argentina could, for example, find itself saddled with a less desirable Mexican model, where the militarisation of the war on drugs in 2006 has been followed by nearly two decades of persistent and relentless drug cartel-related violence.

• Mixed picture from the pollsters

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  The latest opinion polls compiled as Milei approached the end of his first 100 days in office in late March, show that Argentine society remains politically polarised. According to polling agency D’Alessio IROL Berensztein, the Milei administration had a 43% approval rate, but a 52% disapproval rate. Meanwhile another pollster, Giacobbe & Asociados, found that 53.6% of respondents had a positive image of the new president, against 42.1% with a negative image. Opina Argentina found Milei had a positive image for 52% of those surveyed (up by two points on the previous month) but it also noted that its margin of error was +/- 2.6%. This agency found that support for the president was significantly higher among men (65%) than among women (49%). Facundo Nejamkis, director of Opina Argentina, argues that Milei comes across as an “attractive and disruptive” person to many voters. If he can steer the economy back to a growth path, it is likely that his hard core of supporters will consolidate. Failure to deliver on the economy, however, will weaken and begin to dismantle the pro-government coalition.

  In terms of other key figures in the government both Vice President Victoria Villaruel and Patricia Bullrich, the security minister, were hovering around a 50% positive image rating. However the economy minister, Luis Caputo, who is obliged to be a bearer of frequently bad news, had a significantly lower positive image of 37% versus a negative image of 60%. Key opposition personalities also performed relatively poorly. Peronist leader and Buenos Aires province governor Axel Kicillof had a 38% positive image, way below his 60% negative image. Martín Llaryora, the governor of Córdoba province who played a prominent role in the skirmishes with Milei over provincial funding, also emerged as unpopular. Both former presidents Cristina Fernández de Kirchner (2007-2015), on the Peronist left, and Mauricio Macri (2015-2019) on the traditional right, had high negative image scores.

  An interesting aspect of the Opina Argentina poll is that it asked whether the new president should “impose his ideas and agenda for government”, or, on the contrary, whether he should “negotiate and seek agreements with the opposition”. A total of 37% of respondents said he should follow his own course, but a larger group of 58% - a clear majority - favoured reaching a consensus. The pollster also asked a similar question over what respondents believed that the opposition should do. The biggest group – 58% - said it should “collaborate with the new president and allow him to apply his economic programme”. A smaller group – 39% - believed the opposition should “oppose and block” his programme.

  Reflecting on the results of various polls, Jorge Arias, a specialist at consultancy Polilat, says Argentina is another example of a spreading “global dissatisfaction with democracy”. He says, referring to Milei’s favourite electoral prop: “That weariness, that boredom or dissatisfaction, people have sought to express it with an 'outsider' who came to place the political caste on the cutting edge of a chainsaw.” As he put it, the problem now is that while many voters see themselves holding the chainsaw by the handle, many are in reality finding themselves at the other end of it, as victims of the cuts.   

  The new President’s image

  Key: (top to bottom) Presidential image: very positive; somewhat positive; somewhat negative; very negative; don’t know/won’t say

  Source: Opina Argentina

  Go it alone or negotiate an agreement with the opposition?

  

  Key: (top to bottom) He should impose his ideas and agenda for government; he should negotiate and reach agreements with the opposition; don’t know/won’t say

  Source: Opina Argentina

• Foreign policy: Milei’s shift to the right

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  In foreign policy, the new government has begun a significant shift to the right. In its first days in office, it declined an invitation to join the BRICS group of emerging economies, which includes China and Russia, and which often presents itself as a mouthpiece for the Global South. In its place Milei has signalled a desire to align his country more closely with the United States and Israel. Alejandro Rascovan, a professor at Universidad Nacional de San Martin, is critical of this shift. He says the Buenos Aires government is pursuing an ideological approach to Israel in the middle of the Gaza war; that it is gambling on a Donald Trump victory in the US presidential elections in November this year; and that it is expressing “disdain” for Brazil, a traditional ally of Argentina.

  From Rascovan’s point of view, Milei’s first travels as president give a sense of his priorities. He visited the annual Davos summit (organised by the World Economic Forum, WEF), Israel, Italy, and the Vatican. He also attended the meeting of the Conservative Political Action Conference (CPAC) in the United States, a gathering point for far-right activists and Donald Trump supporters.

  There are some fears that, under Milei, Argentina will turn its back on regional diplomacy and integration. Until recently the country has been highly active in a range of Latin American organisations including the Community of Latin American and Caribbean States (CELAC), the Organisation of American States (OAS), and the South American Common Market (Mercosur – formed by Argentina, Brazil, Paraguay, and Uruguay). Although Milei has toned down suggestions he would take Argentina out of Mercosur, the common market is likely to struggle given the ideological differences between its two most influential members, Brazil and Argentina,

  The new president has also become more pragmatic on the issue of relations with China. During the election campaign he had threatened to downgrade diplomatic relations with Beijing as he did not want “deals with communists”. However, China is a key market for Argentina’s agricultural exports (particularly soya), has set up a US$20bn Central Bank swap facility to help Argentina rebuild its foreign currency reserves, and is an important investor in the lithium mining and infrastructure sectors. China was Argentina’s second most important export market in 2022, taking 9.1% of total shipments worth US$8bn, coming in second to Brazil (which took 14.5% of Argentina’s exports, worth US$12.6bn). Argentina’s relations with Beijing are unlikely to be particularly close, but the two countries will remain significant trade partners.

• Compare and contrast: Milei and Noboa

  Patrick de Courcy 27 March 2024 Hits: 2288

  There is an interesting comparison to be made between Milei’s initial experience and that of Ecuador’s new centre-right president, Daniel Noboa. Noboa, a prominent businessman, claims like Milei to be a political outsider. By an accident of timing, both took office within little over two weeks of each other. Noboa was sworn in in a ceremony in Quito on 23 November, marking his first 100 days in office on 2 March 2024. Milei took office a little later, on 10 December in Buenos Aires, completing his first 100 days on 19 March 2024.

  On the surface, Noboa got off to a stronger start. With an initial popularity rating of around 60% on taking office, by the end of the fist 100 days his approval rating had surged higher to around 80%. Milei also started out with around 60% backing, but over the first 100 days that had dropped back somewhat to a 45%-55% range. While cross-country comparisons can be over simplified and possibly misleading, one explanation of Noboa’s better performance may be that voter sentiment was reacting to a major outbreak of crime and violence (including prison riots and a high-profile gang attack on the TC Televisión station in January). In these extreme circumstances Ecuadorean votes were therefore particularly receptive to the new president’s hard-line response, which included a declaration of a “state of internal armed conflict”.

  According to a survey published in February by Ecuadorean pollster Cedatos, Noboa had an 81% approval rating. A total of 79% of respondents said they trusted the new president, 56% said the country was “on the right track”, and 52% said the situation in Ecuador had improved since Noboa took office. Respondents listed crime and violence as their top concern, followed by unemployment, the economy, and poverty. Having articulated a popular security policy, it seemed that Noboa had created a sense of momentum and as a result was able to begin tackling other issues of concern including the economy and jobs, from a position of strength.

  Comparatively speaking Milei lacked a strong initial win to lift his popularity numbers within the first 100 days. His top issue – bringing inflation under control and resolving the economic crisis – will, in the optimistic scenario, take some more months before any big-headline progress may begin to make itself felt. In fact, the Argentine economy will be in recession this year. Some estimates suggest the economy could contract by as much as 4%-5%, with a recovery not likely until 2025, when the mid-term elections are due. The government also faces more unpopular decisions down the line, including lifting consumer energy subsidies (which is likely to create another spike in inflation) and coming up with an indexation system for pensions.

  An important and possibly critical point is that Milei and Noboa have reacted differently to having only minority support in Congress. As we have seen, Milei’s party controls only 10%-15% of the upper and lower houses in Argentina. In Ecuador, Noboa’s centre-right Acción Democrática Nacional (ADN) controls only 10% of the seats in the single-chamber National Assembly. The big difference is that while Milei’s administration has spent its first three months mired in congressional disputes and deadlock, Noboa’s has moved comparatively swiftly to make deals on an issue-by-issue basis with the left-wing Revolución Ciudadana (RC) and the conservative Partido Social Cristiano (PSC) parties. As a result, there is a greater sense in Ecuador than in Argentina that the administration is moving forward to deliver its electoral mandate.

• How deep is the pain?

  Patrick de Courcy 27 March 2024 Hits: 1712

  A key question looking forward is to assess the level of hardship imposed on the population at large, as a result of high inflation and a growing recession. The Milei government has from the start made clear that economic conditions are likely to get worse before they get better. That is implicit in his programme of shock measures which focus on further devaluing the peso to restore export competitiveness, cutting the fiscal deficit, and reducing the size of the state. A recession is inevitable but there is less certainty over how deep it will be, and over how long it will last. Benjamin Gedan, director of the Latin America Programme at the US based Wilson Centre, emphasizes how consequential the outcome may be. “It is a fairly traditional approach to stabilisation” he says, but he warns “that doesn’t mean it is not dramatic and high stakes…it is an act of either political courage or political suicide”.

  One important measure of hardship has been produced by the Observatorio Social of the Catholic University (Universidad Católica Argentina – UCA). It estimates that in January 2024, 57.4% of the population, or 27m people, were living below the poverty line, unable to afford a basic basket of goods and services (known as Canasta Básica Total – CBT). Particularly important is the speed at which the general poverty rate has increased. In the third quarter of 2023 the poverty rate stood at 44.7%, rising to 49.5% in December 2023 and then to 57.4% in January. In other words, in a period of a few months the population living in poverty rose by 12.7 percentage points or by just under 6m people. As significant perhaps is that the current rise in poverty numbers is higher than during Argentina’s last major crisis just over two decades ago.  

  Within the total living in poverty, UCA found that 15% were living in extreme poverty or indigence. This category is defined as those people who cannot afford to purchase basic foodstuffs contained in the Canasta Básica Alimentaria (CBA). The director of the Observatorio Social, Augustín Salvia, told local media that the sharp increase in poverty rates reflected the previous government’s “four years of economic inefficiency”. He warned that “if this doesn’t work out for the government there will be a break point, things will get worse and there may be a social explosion.”  At a more anecdotal level newspapers and foreign correspondents have been writing for several months now about the spread of food banks in poor communities.   

  Poverty rates on the rise again

  

  Note: Pobreza = Poverty, Indigencia = Indigence/Extreme poverty, EPH = discontinued statistics series

  Source: La Nación, UC

• What do Milei’s first 100 days tell us?

  Patrick de Courcy 27 March 2024 Hits: 1900

  In many senses the new president’s first 100 days are inconclusive. He has had some hits and some misses. His popularity ratings have dropped back a little but broadly speaking those who voted for him at the end of last year are continuing to support him so far this year. Milei’s political honeymoon period has been broadly predictable. In an attempt to focus more sharply on the options that lie ahead and, by way of conclusion, we will now discuss three possible scenarios for the rest of the Milei presidency. These are not hard and fast predictions, but a speculative exercise to tease out some of the ongoing issues. 

• Scenario 1 A social explosion?

  Patrick de Courcy 27 March 2024 Hits: 1841

  On 18 October 2019 a group of Chilean students began a protest demonstration against higher metro fares in Santiago. In a matter of hours, it set the country alight. The population came out on the streets to protest over a wide range of economic and social issues. Over the next six months there were widespread arson attacks, incidents of looting, mass peaceful protests, and violent clashes that left a total of 36 people dead. It is not an exaggeration to say that this was the most significant political crisis in Chile since the restoration of democracy nearly 30 years earlier. It is also the case that the upheaval was almost entirely unpredicted.

  Under the presidency of Javier Milei could there be an Argentine version of Chile’s social explosion? There are many reasons for saying “yes” but also numerous reasons to suggest that such a dark outcome will have a low probability of materialising. One of the main reasons for believing that it could happen is simply that it has happened before. In the summer of 2001/2002 Argentina suffered an economic meltdown with the forced ending of a peso-dollar exchange rate peg, a major devaluation, an inflationary surge, and a default on the country’s foreign debt. Riots and looting broke out in the country’s main cities. Here too there were deaths – some 39 were killed in the surge of nationwide unrest. The elected centre-right president, Fernando de la Rua, was forced to resign and had to be evacuated from a besieged government house by helicopter. It was during these protests, over 20 years ago, that citizens turned against the political class chanting “que se vayan todos” (‘All of them must go’)

  The reason why there is a low probability of a new social explosion at this stage is that Milei has a recently given democratic mandate. His supporters know he promised to cut back the state. He has declared himself to be an enemy of the political ‘caste’. His opponents disagree with the details of his austerity policy but cannot ignore its democratic provenance. There are existing democratic checks and balances to restrain Milei’s more extreme economic policies, not least an opposition dominated congress. The trade union opposition has held one general strike in the first 100 days, but participation rates were limited (labour leaders are not the most popular public figures as they face long standing corruption allegations). It is also true that in the wake of electoral defeat, leadership of Argentina’s centre-left forces remains fragmented.

  That said, in the coming months risks of a social explosion may increase. Perhaps the biggest point of danger concerns the sheer size of the cuts in living standards that the new austerity regime requires. The UCA poverty rate measure mentioned above shows that the proportion of the population living in poverty has gone back up to what it was in the years immediately following the 2001-2002 crisis. That alone should be a danger sign. The fact that the fiscal deficit was eliminated in the first two months of the year, but only by slashing state pensions by a massive 39.5% in real terms, and by reducing transfers to the provinces by 65%, suggests the policy will be hard to sustain. As austerity is intensified, Milei’s image will become less favourable. His aggressive ‘outsider’ and anti-establishment persona worked exceptionally well to win the elections but may be essentially counter-productive when it comes to running the country. A lack of empathy at a time of unprecedented hardship, a reluctance to negotiate political deals with potential allies, and a lack of political experience could all create political instability.

• Scenarios 2 Milei triumphant?

  Patrick de Courcy 27 March 2024 Hits: 1710

  A radically different scenario, in which Mile emerges triumphant, can also not be ruled out at this stage. What would success for Milei look like? A key initial component would be an initial stabilisation of the economy. The first converts to ‘Mileiconomics’ would be the financial markets, investors, and the business community. To some extent short term indicators are already generating localised optimism – but within a fairly narrow demographic segment. As we have seen the monthly inflation rate is beginning to come down and may hit single figures during the second quarter of 2024 or even earlier. The fiscal deficit has been eliminated, foreign currency reserves are growing, and the gap between the official and free market exchange rates has narrowed, showing increased confidence.

  The ‘Milei triumphant’ scenario suggests that these comparably small technical economic wins will kick-start a wider sense of optimism that will spread from the financial markets outwards to influence progressively wider segments of society. A sharp reduction in inflation, if achieved, will influence both middle- and working-class sentiment. In fact, the new government already has an implicit game plan for the next two years. This involves acknowledging the need for a painful sacrifice – embodied in financial stabilisation and a sharp recession this year – but positioning the country for a strong economic recovery in 2025, a year which will be marked by mid-term elections in October. A successful outcome in the mid-terms would involve changing the balance of forces inside congress to make major structural reforms possible.

  To work, the optimistic scenario would require a lot of other things to happen, some of which will be difficult to achieve, or which lie beyond the government’s control. First, global economic conditions, Chinese demand for Argentine soya exports, and commodity prices need to be supportive. Second, good weather is needed, also to assist a recovery in agricultural exports. Third, Milei needs to be able to deliver a sustained rather than a short-lived recovery. This is important because Argentina’s last free market president, Mauricio Macri (2015-2019), proved unable to eliminate the country’s damaging stop-go economic cycle. At the outset of his government Argentina was the darling of the capital markets, but by 2018 the peso was again subject to relentless speculative attacks. Fourth, looking forward, the Milei administration needs to resolve questions of timing and intensity. Much of the economic pain would need to be concentrated in 2024, with the green shoots of recovery coming through into force during 2025.

  The pain would also need to need to be politically calibrated so that not all lobby groups are hit at the same time. In the first 100 days, for example, it seems that the main losers have been state-funded pensioners and provincial administrations. Continuing with such drastic funding cuts for these two groups without some form of relief would be politically unwise. Likewise, to be successful Milei will need to offer some concessions to the pro-dialogue opposition. Continuing to attack these potential allies as members of the corrupt political class will simply make cross-party agreements on reform more difficult to achieve. The government will also need to avoid mistakes derived from political inexperience, such as its poor handling of the controversy around the president’s nominal salary.

• Scenarios 3 The messy middle way

  Patrick de Courcy 27 March 2024 Hits: 1618

  A third possibility is that Milei’s first 100 days point neither to a social explosion nor to a triumph of free market economics, but to a long, extended deadlock, when nothing much changes. Put bluntly the hard opposition led by the Peronists will refuse to back reforms while Milei’s combative stance will alienate the pro-dialogue opposition, creating a prolonged stalemate. The debate on the DNU and the omnibus law will simply drag on for much, if not all, of this year. Although it will still be possible to score some macroeconomic wins – such as achieving lower inflation and better fiscal management – Milei’s government could end up hamstrung by congressional opposition. Most of the government’s priorities require legislation of some kind. Without minimal congressional agreement and understanding Milei may find roadblocks at every turn.

  A potential inauspicious example of how things might go in this third scenario for Argentina is given by the far-right presidency of Jair Bolsonaro in Brazil in 2019-2023. There were some achievements during that presidency, including pension reform and a limited fiscal rebalancing. But looking back on it, much time and effort was invested in fighting cultural wars (over gun ownership, education, religion, and abortion, among other issues). More damaging, the Bolsonaro government clashed frequently with the judiciary and the legislature, undermining democracy, and the rule of law, up to the point of trying to overturn the results of the 2022 elections.

  It is not difficult to imagine that the Milei administration could become locked into a dispute with the congressional opposition which would turn into a wider political crisis and undermine economic reforms. Like during the Bolsonaro government, this would have toxic effects and delay much needed structural economic reforms.