Can Milei’s ‘shock therapy’ fix Argentina’s economy?

By admin On Dec 9, 2023

The president-elect has pledged radical policy measures to deal with the financial crisis

Argentina’s president-elect Javier Milei is facing a huge challenge of turning around the nation’s battered economy when he takes office on December 10. Critics claim Milei’s radical proposals are pushing the country into the unknown. RT explores his endeavor to save one of the world’s most troubled economies.

Who is Javier Milei?
Described as a right-wing populist and self-proclaimed “anarcho-capitalist,” Milei defeated Economy Minister Sergio Massa in Argentina’s recent presidential election. He is often compared to former US President Donald Trump for his liberal use of insults. Trump recently declared that he was “very proud” of Milei, and that the president-elect “will truly make Argentina Great Again.”
What is Milei’s economic vision for Argentina?
Throughout his campaign, Milei regularly brandished a chainsaw, a dramatic illustration of his promises to slash social spending, cut retirement and pension funds, shut down the country’s central bank, and reduce the number of government ministries by more than half. He has proposed reducing the functions of state to a minimum and has placed his trust in the market alone, hoping to solve Argentina’s problems by boosting trade and exports.
Milei has also vowed to lift capital controls, end government protection of national industries, and eventually abandon the peso in favor of the US dollar. Among other promises are privatizing state-owned media outlets and other public companies including the energy firm YPF.
Foreign economic policy
During his election campaign, Milei threatened to cut off diplomatic relations with Argentina’s two main trading partners, China and Brazil. He has also expressed support for Ukraine in its conflict with Russia, and stated on the campaign trail that he is opposed to Argentina joining the BRICS group.
Why are economic reforms necessary?
Inflation in Argentina is running at 143% annually, net foreign currency reserves are near their lowest level since 2006 amid a historic drought, savers are abandoning the peso, and the country is expected to enter a recession this year. Four in ten Argentines live in poverty and a sharp peso devaluation is likely. According to the latest central bank analyst survey, Latin America’s third-largest economy is on track to shrink by 2% this year. Along with triple-digit inflation, that is likely to entail a spike in poverty levels as salaries and savings are eroded.
Will the president-elect stick to his promises?
Milei has called “false” rumors that he has eased off on his plans, although some observers are claiming that he is picking a more moderate cabinet than expected. This week after a trip to the US, the incoming president announced that he had chosen former JPMorgan stock trader Luis Caputo to be the country’s economy minister. The latter, who is known for his close ties with Wall Street and Buenos Aires banking circles, will be tasked with renegotiating Argentina’s troubled $43 billion loan from the IMF, on which the country has missed almost all of its targets this year. Milei also said that he will keep his promise to shut the nation’s central bank, calling the issue ‘non-negotiable.’
Could Milei’s policy plan pull the economy out of crisis?
Experts say that if Milei does go ahead with his proposed reforms, it will be a bold but risky attempt. Failure could lead to the already embattled country suffering a tenth sovereign debt default, an increase in poverty, and possible social unrest. Some economists have raised concerns that Milei’s ‘shock therapy’ sets Argentina on a path of deep uncertainty. Experts suggest that dollarizing the $622 billion economy at a time of depleted international reserves and pending payments to the IMF could plunge the South American nation into another spell of hyperinflation.