On Milei’s economic plans for Argentina

 

Javier Milei's victory in the primary election has set alarms in Argentina. Many suggest that this was unexpected, and in a sense, given the more recent polls, it was. Also, many have suggested that his strong showing represents a protest vote, since he is a complete outsider, and that this is a repeat of the 2001/2 protests that demanded that all established politicians were ousted (que se vayan todos). But these are at best half truths.

Sure enough the vote on Milei represents a protest, but he is not really an outsider, even if he does come from the lower middle class. He is ensconced within the Argentine establishment that nurtured him in more than one way. He is at best an eccentric outcome of that Argentine establishment.

Note that he studied at the Universidad de Belgrano, and Universidad Torcuato Di Tella, both private universities, that normally cater to the elites in the country. He worked in several financial sector institutions, including Estudio Broda, founded and managed by Miguel Ángel Broda, a Chicago economist that has been part of the Argentine financial establishment for more than five decades. He was invited and interviewed in all the main media outlets of the country for years, and always treated as an economic expert, even if often he was there for his more colorful ideas and behavior.

Also, many of his current advisors had key positions in previous administrations. Roque Fernández, for example, was both president of the central bank and finance minister during the Convertibility period in which the exchange rate of the peso and the dollar was fixed, in a similar way to dollarization.

Milei and his plans, the two relevant ones (forget some of the crazy stuff that won't happen, like stopping all trade with China), namely, dollarization and closing the central bank, are not alien to the Argentine elites that he has served over the years, and that has provided him with jobs and media space. At the end of the day, all neoliberal experiments (the Military one between 1976 and 1983, the Peronist one with Menem between 1989 and 1999 and a bit beyond, and the Macri one between 2015 and 2019) included people that share similar ideas to Milei and his advisors, and some of them were involved in the previous neoliberal turns.

Last year, at a Milei event, Federico Sturzenegger, who worked for Domingo Cavallo at the end of Convertibility and was the head of the Central Bank (BCRA) during the Macri government, while noting that dollarization was not the best solution, and suggesting that central bank independence is not enough, went on to defend a common currency (interestingly enough the same plan of Grabois, the lefty in the Peronist primary). Milei's victory, if it happens (which is still not a sure thing), and his plans would not be significantly different than the previous neoliberal plans, and the consequences would be as negative as before.*

I have written quite a bit on the negative effects of dollarization (old book on that here). I'll leave a more detailed discussion for a later post. The important thing I want to note at this point is that, if there is a way of obtaining the dollars necessary for dollarization, then that would also allow for holding the exchange rate stable, precluding a large devaluation, and even to bring down the difference with the parallel (blue) dollar. Of course, that would imply resolving not only the financial external constraint that Argentina faces now, but also dealing with the payments (in dollars) to the IMF, which, at least at this point, seem to be beyond the country's capacity to repay. Formal dollarization wouldn't solve those problems, and would generate many new ones.

* That's not the only connection with the other neoliberal experiments. In all of them there were direct violations of human rights, or explicit support for the violators of human rights, and that's true also in Milei's case.