Javier Milei’s 100 Days in Office and Argentina’s Economy

212

Milei, who promised painful shock therapy to fix the country’s struggling economy and is now 100 days in office

Frustrated by decades of economic crisis, Argentine voters surprised opinion polls by electing Javier Milei as president last November. The far-right libertarian, who promised painful shock therapy to fix the country’s struggling economy and is now 100 days in office, has made gains but struggled to implement the broadest parts of his reforms.

Amid rising social conditions, the president is trying to win over hostile lawmakers to implement his radical austerity plan. “I want you to understand that Argentina is in a critical situation,” Milei said hours after the election. “The changes our country needs are drastic. There is no room for gradualism.”

“When Milei took office, inflation was 143%, poverty 40%, and the government owed $110 billion to external creditors. His election was partly a rebuke to the ruling Peronist regime, which has dominated Argentina’s politics since 1983.

Days after taking office, the former TV personality began implementing his radical plan – to devalue the peso by 50%, cut government subsidies, fuel, and the number of ministries in half. Although Milei backed away from his campaign promises to dollarize the economy and abolish the central bank, the International Monetary Fund (IMF) welcomed his first steps.

In January, the IMF signalled its support by disbursing a $4.7 billion loan. Argentina’s move to the right also stimulated financial markets, including the international bonds maturing in 2041, which rose seven per cent shortly after Milei was elected.

Rising bond prices usually reflect investors’ growing confidence in the country’s economic policies. However, critics fear President Milei’s extensive austerity program could trigger mass unemployment and send the economy into an unpredictable and potentially turbulent future.

Emergency Decree

On 20^th December, Milei issued an emergency decree aimed at strengthening his deregulation push from the previous week. The mandate, which can only be used in “exceptional circumstances”, allows Milei to bypass Congress, where his party, La Libereco Avanza, has only 38 of 257 representatives and 7 of the 72 seats in the Senate. Like in the United States, legislation is passed from the lower house to the upper house.

The decree amended or repealed 366 laws aimed at privatizing the country’s state-owned enterprises, including the airline, media, and energy group YPF. The measures also weakened health care, housing, and land ownership regulations.

In other areas, the regulations stripped workers of their rights, lowering maternity pay and severance pay, among other things. It also allowed companies to fire striking workers. The decree immediately sparked protests, and after an appeal by Argentina’s umbrella union, the General Labour Confederation (CGT), a court halted Milei’s labour reform.

On January 30, a court ruled Milei’s reforms “unconstitutional.” Matias Vernengo, a former official at Argentina’s central bank, said, “It was a defeat for the government”. The Argentine Senate voted on March 14 to reject the emergency decree, dealing another blow to the president. Many centrist lawmakers said Milei should introduce his deregulatory reforms to Congress.

The survival of his plan now depends on negotiations with opposition representatives in Argentina’s lower house. Many centrist lawmakers said Milei should introduce his deregulatory reforms to Congress. It’s the oxygen he needs to keep going. Lawmakers’ policies don’t look good.

Milei sent a reform bill known as an omnibus to Congress on December 22. It changed four key policy areas – tax, penal, electoral, and party systems – that presidents cannot influence through executive order. In addition to spending cuts aimed at eliminating the deficit by the end of 2024, the bill aimed to eliminate proportional representation in the country.

Congress also proposed giving the president legislative power in areas such as energy and fiscal policy until 2025. In response to a number of coup attempts, Argentine workers launched a general strike coordinated by the CGT. Only 45 days after the inauguration of the president, it was the fastest strike in the history of Argentina.

After days of intense debate, Congress approved a watered-down version of the consolidation bill on February 2, paving the way for a decisive vote in the Senate on further changes to the legislation. But the talks ultimately failed after the ruling as the coalition rejected the main measures.

Milei went so far as to withdraw the bill on February 6, cancelling the voting days earlier. Rather than see his bill “torn apart”, Milei told the Financial Times that he decided to wait until the late midterm elections of 2025 when he tried again with a new package. In the meantime, there are “other decrees we can do without Congress”, he said.

Graham Stock, an emerging market sovereign debt strategist at BlueBay Asset Management, said Milei seems confident about the executive powers he must try to implement his radical austerity plan against the consent of Congress, “The executive branch has a lot of control over the spending side of the budget, including voluntary transfers to counties that have already been cut to force governors to the negotiating table,” he said.

Milei accused district governors of not supporting his omnibus bill. He, in turn, is targeting them with austerity measures, cutting subsidies that country leaders use to keep.

Stock said Milei is now “trying another path to a congressional majority” by engaging in a fiscal drag-war with the Argentine governors, who influence the country’s representatives considerably.

Milei’s ability to negotiate an awkward agreement with the country’s governors, many of whom are staunch Peronists, is still in doubt. For Stock, “the path to a successful stabilization and recovery of Argentina’s economy is there, but it is narrow.”

Analysts were surprised when the government left Argentina’s first surplus in 12 years in early 2024, which was possible only by reducing payments to provinces, freezing budgets, and not fully matching social spending for inflation.

According to Eduardo Barcesat, a law professor at the University of Buenos Aires, Milei’s choice to attack the governor could backfire. “By confronting the governors, he has weakened his position in Congress, especially with centrist lawmakers”.

Barcesat said, “Inflation accelerated to 276% in February, largely due to the recent depreciation of the peso. At the same time, the poverty rate rose to 57.4% in January, the highest figure in 20 years. Rising tensions between workers and unions have led to many strikes and protests in recent weeks.