The writer is senior fellow at the Center for International Governance Innovation and a former IMF executive director
Argentines went to the polls last Sunday in a primary election that was a dress rehearsal for the general elections to be held on October 22. The winner, Javier Milei, with a little over 30 per cent of the vote, is a rightwing libertarian who campaigns like a rock star, lives alone with five mastiffs named after famous liberal economists and claims not to have brushed his hair since he was 13 (he is 52).
Milei has vowed to “dollarise” the economy and “blow up” the central bank in order to prevent Argentina’s corrupt “political caste” from printing any more pesos.
Consider the dire economic context in which this message has resonated with many desperate Argentines.
The central bank is almost out of reserves, the government of President Alberto Fernández has imposed restrictions on access to the foreign exchange market and exchange rates have mushroomed as people rush for dollars.
Since Argentina signed its 22nd lifeline programme with the IMF in 2022, it has missed all its fiscal, monetary and reserve accumulation targets. The government blames a $20bn drop in exports on a severe drought. While acknowledging the impact of the drought, the IMF argues that the government compounded the problem by pumping up the economy with generous energy subsidies and an overvalued official exchange rate that has artificially reduced the cost of imports.
No wonder Argentina is again on the brink of default. The government is hoping that the IMF will soon finally disburse $7.5bn. But if it does, the money will not stay in Argentina. It must be used to pay back short-term “in extremis” borrowing from China, Qatar and the Development Bank of Latin America (CAF).
With nearly 40 per cent of the population living below the poverty line, Argentines’ patience is running thin. Many, particularly among the young, have responded favourably to Milei’s promise to replace pesos with dollars.
Markets, though, responded with alarm. The day after the election, peso-holders (there are still some left) ran to exchange their unworthy pieces of paper for greenbacks. Meanwhile, the government devalued the peso by nearly 22 per cent, as the IMF had requested.
If Milei were to win in October — and it is still a big “if” — his radical libertarian ambitions will collide with this dismal economic and social reality. Yet, whatever the outcome, he has at least succeeded in shaking up the debate in Argentina, particularly on the economy and security issues.
Current finance minister Sergio Massa — a pro-market Peronist who cunningly managed to run for the governing Kirchneristas (a leftwing Peronist offshoot that has ruled the country for much of the past 22 years) — shows little sign of accepting defeat. And he will surely move to toughen his position on security between now and October. Drug-related crime and violent robberies are a particular problem in poor urban areas that were previously centres of Peronist support.
Massa will no doubt read from the Peronist playbook and blame the dire economic situation on the IMF. He will also try to alarm his friends in the Biden administration by portraying Milei as a terrifying hybrid of former US president Donald Trump and his Brazilian counterpart Jair Bolsonaro.
As for the mainstream opposition grouping, Together for Change, it finds itself in a delicate position: its candidate, Patricia Bullrich, is appealing to the same rightwing electorate as Milei.
The results of Sunday’s primary, while shocking, are not definitive. The situation is highly volatile, though two things, at least, are certain: Argentina is veering rightward and if the Peronists are ousted, they will — as usual — blame the IMF. The fund should keep its hand in its pocket until the dust settles.
Source: Economy - ft.com
