(Bloomberg) -- At a black-tie gala at Mar-a-Lago the other night, Argentine President Javier Milei couldn’t contain himself. The gathering had been arranged to celebrate the election of his guy Donald Trump, and no one was going to outdo Milei. He whirled, pivoted, swayed, bro-hugged, flashed the thumbs-up sign — sometimes one, sometimes, for emphasis, two — and beamed the broadest of smiles as the cameras flashed.
Early the next morning, when called on to give a speech, he shimmied up to the stage, pumping his fists and stomping his feet to the pulsating rhythms of the Village People’s YMCA. For 15 minutes, he reveled in the defeat of the woke socialist ruling class before dropping his voice a couple octaves to close with his trademark cry: “Long live freedom, damn it.”
Almost one year into office now, Javier Milei is, to the shock of Argentine pundits, having a moment. Not only does he have an ally back in the White House — a crucial development for a leader whose country desperately needs foreign aid — but on the economic front, he’s been racking up the victories.
Inflation is tumbling, just as he promised, from a peak of almost 300%; a long-running budget deficit has turned into a surplus; government bonds, once seen as almost certain to sink back into default, are rallying; and the long-moribund economy is finally starting to rebound. Not bad for an outsider with an agenda so radical that people were speculating openly a year ago on how many months he’d last before having to surrender power.
“Back then,” says Miguel Kiguel, an economist and former undersecretary of finance in Argentina, “this was a dream scenario. It was unthinkable.”
The question now is whether Milei can parlay these wins into the two things he needs most to deliver true, lasting economic gains to his people: a new loan program from the International Monetary Fund and a wave of investment in everything from automobile factories to shale oil rigs. Argentines have been patient so far with Milei though recent polls indicate fatigue with his fiscal-austerity push, and the financial pain that has come with it, is starting to set in.
Inside team Milei, the hope is that Trump’s return paves the way for an IMF deal that would renew, and maybe even expand, the current $44 billion program. Without it, Milei will be hard-pressed to lift rigid restrictions on the currency market — the peso is more stable this year but remains fragile — that act as a key deterrent to multinationals considering investing in the country.
The economy could be posting “a slight bounceback,” said Eduardo Levy Yeyati, chief economic adviser at Adcap Grupo Financiero and a senior fellow at Brookings, “but real growth will not happen until investors decide to put their money into Argentina and we’re not there yet.”
Milei found more room to chop spending than anyone thought possible in Argentina, which is now on track to post its first annual budget surplus since 2008. He’s halted public works, slashed the higher education budget, shrank the public payroll and let public sector salaries and pensions fall behind inflation. After eliminating half of the country’s ministries, Milei created one dedicated to cutting red tape — which he says has inspired Trump to create his Department of Government Efficiency, to be led by Elon Musk.
Yet the same austerity drive has plunged Argentina into recession and more than half of its population into poverty. And while early signs of recovery have emerged — economic activity has returned to pre-election levels in August — consumer spending and industrial production are still down compared to a year ago.
“Milei earned, above all, the patience of the people,” said Mariel Fornoni, director of polling firm Management and Fit, which pins his approval rating at just below 50%. “Today, his government hinges fundamentally on public opinion.”
What Bloomberg Economics Says
“Milei has become the poster boy for an economic model of small state, free trade, free prices from which several economies have departed in recent decades - even though he has yet to implement the ideas he defends in full. The shiniest face of his agenda is the successful effort to rebalance a public budget that had been in the red for decades, which has helped to prevent a hyperinflation. But his disinflation plan also relies on an overvalued, managed peso and currency controls - a strategy on which past Argentine governments to left and right have often indulged. It is only when those controls are lifted - and what follows in terms of flows, indebtedness and inflation - that Milei’s model can be assessed as an example for other emerging markets to follow - or to avoid.”
— Adriana Dupita, Brazil & Argentina economist
Much of Milei’s popularity is supported by the initial success of his campaign against inflation: consumer prices rose 2.7% in October from September, the slowest monthly pace in nearly three years. That still means annual inflation of almost 200% that Milei desperately needs to defeat before Argentines run of out of patience with his policies.
And that’s the reason why the libertarian economist-turned-president has been postponing some of his key campaign pledges, namely the removal of capital and currency controls that would allow the peso to free float, potentially unleashing a new inflationary shock that could hurt his popularity ahead of next year’s crucial midterm elections. Instead, Milei has adopted a currency peg that limits the devaluation of the peso to only 2% a month, and has been talking about further slowing it to just 1% a month.
Keeping the thicket of controls in place has cost Argentina its precious foreign reserves and also prevented long-term investment the country sorely needs for a sustainable economic recovery. Milei’s currency policy is also the sticking point in negotiations with the IMF, which doesn’t want to see its resources again being used to prop up the peso.
“The acid test is whether this is sustainable without currency controls, and we don’t know that yet,” Kiguel said.
Milei likes to brag that time is on his side even when most economists and pollsters warn he’s running of it. Having so far proven his detractors wrong, he comes with renewed self-confidence to a Group of 20 summit hosted by his Brazilian counterpart and archrival Luiz Inacio Lula da Silva. Before even landing in Rio de Janeiro, he was already trying to block consensus around the group’s final communique — acting as a saboteur for some, or as the leader of what he considers as a new global order that will defeat socialists and their “woke” agendas.
Milei’s top economic aide, Luis Caputo, perhaps best captured the giddy mood inside government halls when he made an appearance at the Buenos Aires stock exchange last week. The president, Caputo told the small crowd of economists and business people gathered on the exchange floor, is one of the two or three most-respected people in the world today. Then he corrected himself. Milei’s really No. 1 “but it makes me a little embarrassed” to say so.
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