The newly elected Argentine President, Javier Milei, is an enigma. In recent years, the world has seen the rise of right-wing populist movements, mostly ultra-nationalists like Trump, Bolsonaro and Boris Johnson, pushing back against globalisation. However, Milei is an anarcho-capitalist libertarian who wants to implement the closest thing to laissez-faire or a free market existing in the 21st century.
A free market is one where voluntary exchange and the laws of supply and demand provide the sole basis for the economic system, with little or no government intervention. The President of South America’s second-largest economy wants to cut all welfare programmes, and make the Dollar the only legal tender in Argentina, by replacing the Peso and opening up to trade with capitalist countries.
Most populist leaders are great showmen. Javier Milei takes the game to a whole new level. He has an eccentric persona and came to an election rally with a chainsaw, symbolically hacking away the state and its corruption, earning him the nickname “Chainsaw Man.” He comes dressed up as a lion and even a superhero called ANCAP or Anarcho-Capitalist Man. His rallies are more akin to Comicons than political gatherings and are mostly supported by the youth of Argentina.
Investors, on the contrary, were over the moon with Javier Milei’s victory. Argentine stocks and bonds went up strongly in New York. The value of YPF, an energy company that is mostly owned by the government, went up by 40%. Jorge Piedrahita, the founder of Gear Capital Management, told Bloomberg, “This is the chance for a new start.”
Does Argentina need a start?
Argentina’s GDP was about the same as many Western European countries a hundred years ago after steamships made it possible to send beef and other fresh goods to Europe and North America.
However, it is now very far behind them. It has missed three payments on its national debt since 2000. Long-lasting droughts have been terrible for the country’s agriculture over the past couple of years. There is no more money in the market, and the rate of inflation has risen to 142.7%. The value of the Argentine Peso has dropped over 90% against the US Dollar in the last four years. This means that 40% of Argentines are living in poverty.
Javier Milei, the economist, first got people’s attention by showing up on a late-night TV show. He was mostly angry at the centre-left Peronist parties that have been in power for most of the last twenty years, but he also said that Mauricio Macri’s centre-right government, which was in power from 2015 to 2019, wasn’t strict enough. He told voters that if he won, he would cut taxes and government spending, remove most government agencies, including the Central Bank, and burn all government rules like a bonfire. At his victory party, he said, “Today is the end of decadence in Argentina.”
Some compare Javier Milei with Donald Trump, saying that both of them are right-wing nationalists who like to rule by force. The comparison, however, doesn’t work when it comes to business. Both Milei and Trump indeed call themselves economic nationalists, but Milei doesn’t agree with Trump’s ideas of protectionism.
Milton Friedman and Robert Lucas, two famous economists from the University of Chicago, and Murray Rothbard, a less well-known New Yorker who helped bring the Austrian school of free-market economics to the United States, are some of Milei’s main intellectual influences. Five English mastiffs belong to Milei. Four of them are named Milton, Robert, Lucas, and Murray, and the fifth is named Conan after the Barbarian.
Javier Milei lived in Buenos Aires as a child. After playing goalie for the professional football team Chacarita Juniors for a short time, he switched his focus to economics, getting two master’s degrees and working for several banks, including HSBC.
In a very honest interview with The Economist in September 2023, Milei talked about how reading an article by Rothbard, who died in 1995, turned him into an “anarcho-capitalist.” An “anarcho-capitalist” is someone who thinks that the economy should be based only on private contracts and that the welfare state is “the enemy.”
Javier Milei said that he was still an anarcho-capitalist in his mind, but he was also aware of some of the problems that come with putting this theory into practice. He believed that the state should be as small as possible by only doing security and law enforcement. This is what it means to be a “minarchist.”
When it comes to Latin America, Milei is the ‘son’ of General Pinochet’s Chicago Boys, who opened up Chile’s economy with the barrel of a gun in the 1970s and 1980s, and Domingo Cavallo, who was Argentina’s neoliberal economy minister and tied the Peso to the Dollar in the 1990s. But it’s one thing to support extreme ideas as a person who writes about the economy or runs for office to protest. Another thing is putting them into action, which is hard to do in a country like Argentina that is so split.
The tough road ahead
Since Milei doesn’t want his policies to be put into effect by presidential order, he will have to get them through the two-house legislature, which is mostly made up of centre-right and centre-left parties. Milei would still need to win over some Peronists in the Senate, even if Macri’s party, Together for Change, agreed with Milei’s plans in the lower house. That doesn’t look likely.
Milei might find it hard to get the harsh austerity policies he wants to see passed. There are also real concerns about his main policy idea, which is to make everything worth a Dollar. He says that one of the main reasons for Argentina’s inflation problems is that politicians often use the printing press to solve economic issues. He says that dissolving the Argentine Central Bank and making the US Dollar the only legal currency would stop inflation and drive the government to balance its books.
Javier Milei talks about what happened in Argentina in the early 1990s, when Cavallo, who was president at the time, dealt with hyperinflation by making the Peso fully convertible and putting up a currency board to protect the peg. The inflation rate dropped from over 1,000% to less than 20% in just a couple of years.
One of the most basic problems with Milei’s plan is that Argentina doesn’t have the Dollars it would need to dollarize its economy right now. Analysts say that the country’s Central Bank has negative net foreign exchange funds. This means that it owes more money in foreign currencies than it has.
Emilio Ocampo, an economist and historian who is helping Milei, says that the lack of Dollars is more of a show than a real problem.
“Argentines have more than $200 billion in bills hidden in bank safe deposit boxes or under the mattress at home,” Ocampo wrote not long ago.
Even though Javier Milei has a lot of Dollars on hand, most experts think that his plan would only work if his government borrowed a lot of Dollars from other countries.
Milei told the Economist, “If someone comes and gives me the $30 billion in cash, I can fix it in one day. I won’t be able to solve it in one day if they don’t give me the $30 billion cash.”
How could Milei get the money he needs? The International Monetary Fund and Argentina already owe a total of over $40 billion, with most of that money coming from Macri’s presidency. So, at best, it looks like a long shot that the Washington-based lender will agree to fund the plan to make the Dollar the official currency.
China has also given Argentina a lot of hard cash, but Javier Milei wants to build a bridge between Argentina, the US and Israel. He also says he has thought about becoming a Jew from a Roman Catholic.
As Cavallo’s Dollar peg was still in place in the late 1990s, the value of the Dollar (and, by extension, the Peso) rose sharply. This made Argentina’s products less competitive on world markets. The economy fell into a deep slump, and money began to leave the country.
When Cavallo came back to power in 2001, capital flight sped up. Eventually, he told banks to limit cash transfers. Riots happened in Buenos Aires and other places in December 2001. Cavallo quit his job. He did the same thing as President Fernando de la Rúa. Later, Argentina stopped paying its debts and finally gave up the currency peg.
In the decades after the First World War, when they insisted on bringing back the gold standard of the 1800s, many Western countries learnt this lesson. Even though rigid monetary systems may work well to stop inflation, they make it harder for countries to deal with economic shocks from inside and outside the country. When Argentina fully adopts the Dollar, it will lose its Central Bank, which is a lender of the last option. This will make the country’s financial system even more fragile.
“Dollarisation is a potentially dangerous ‘no exit’ strategy,” wrote Mark Sobel in an article about Milei’s plans. Sobel used to be a top official at the US Treasury Department and a US representative at the IMF.
The article says, “It could set the stage for a big contraction and crash while taking attention away from the hard work of fixing the economy.”
A progressive think tank in Washington has a specialist in Latin America named Mark Weisbrot. He wrote that even though Argentina had serious economic problems, “a crazed, economically suicidal approach would only make things worse—and as Argentina has experienced, things can get a lot worse.”
According to Michael Stott, the Latin America editor of the Financial Times, Milei’s plan to make all money in Dollars is unlikely to be implemented in the short term. This is because Milei lacks support in the government for many of his ideas. Therefore, it remains to be seen whether or not his plan will come to fruition.
Will someone like Javier Milei, who ran for office with a chainsaw, submit to the leaders he has called ‘thieves”’? This man told The Economist that if the government doesn’t agree with his plans, “then we plan to go to referendums for structural changes that we consider fundamental.” It looks like Milei won’t easily change his mind about his bold plans.