Sympathy for the Devil: The Rise of ‘El Loco’

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Argentina has witnessed a political cyclone in the past several months, one spearheaded by an unlikely figure: Javier Milei, an economist whose fiery TV persona and fierce opposition to Peronism have propelled him from the airwaves to the highest office. His journey to presidency, like his personality, has thrived on eccentricity, libertarian rhetoric, and, most importantly, a promise to the Argentinian people for radical change.

Milei’s career in economics traces back to the political turmoil in Argentina in the 1980s. Inflation had reached a record high of 2,600 percent as growth of real output stagnated; the financial system collapsed, and capital fled the country. Fundamental to his transition from Everest—a Rolling Stones cover band—to economist was his avid skepticism for neoclassical growth theory. He questioned the government’s capacity to correct market failures on behalf of the welfare state, arguing that this in itself was contradictory. To Milei, this contradiction arises from the inability of a governing body to (1) know “the utility function of all individual preferences”; and (2) “master information that… individuals themselves ignore or are not able to handle”. In short, individuals are inherently irrational, and attempting to aggregate this irrationality to address socio-economic issues often never yields utopia. So, why assume governments have the prescience to accurately combat these issues? This is precisely Milei’s argument and the foundation of his candidacy.

Following a two-decade career in academia, Milei garnered national notoriety as a TV-pundit, spewing his anarcho-capitalist agenda on national television. From annihilating a central bank-shaped pinata to performing an opera about public spending, Milei slowly became the erratic poster manchild for change. In 2021, Milei transformed his online popularity into political capital, securing a seat in Argentina's Congress. This wasn't just a personal victory; it marked the arrival of his party, La Libertad Avanza, on the national stage.

For 16 of the past 20 years, the Peronist party has governed Argentina. Their reign has been characterized by high public spending and heavy economic intervention. In recent times, unsustainable government expenditure and overreliance on commodity exports have completely destabilized the economy. Financial mismanagement has plunged Argentina into $398.2 billion in debt—of which they have defaulted nine times. These issues were exacerbated by the collapse of the peso in 2018 and a record $57 billion loan from the IMF. As inflationary woes ballooned, so too did political polarization.

Enter Milei, captivating audiences with his impassioned critiques of Argentina's "political caste” and vehement rants against the Peronist party. Throughout his campaign, he railed against government intervention, advocating for drastic cuts in public spending and a shift towards a free-market utopia. At a political rally last November, he was seen violently waving a chainsaw over his head, a symbol of his desire to slash the size of the state.

Milei’s messages and radical actions resonated with a growing segment of Argentinians disillusioned by decades of economic instability, inflation, and perceived corruption. His bluntness and outsider status became assets, attracting young voters and those yearning for a shake-up of the political system. But just what does this shake-up entail?

For Mr. Milei, the priority is to cut government spending, deregulate the economy, and stimulate investment and growth through privatization. As of 2022, government expenditure has approached a 150-year high, accounting for 38% of Argentina’s GDP. For the libertarian coalition, it is this sprawling public sector and extensive government intervention that has accelerated inflation. To buck the trend, Milei proposes economic “shock therapy”, or slashing subsidies such as the one lowering energy prices by 15%.

To do so, the new president has proposed an Omnibus Law comprised of over 600 articles and reforms to enable such a radical redirection. Milei’s decree aims to privatize state-owned companies, strip away workers’ rights including maternity leave, end limits on exports, and alter housing rental and land ownership laws to allow for foreign investment. He has also proposed to shut down Argentina’s central bank and adopt the US dollar as the national currency to tame inflation. Remarkably, the sweeping economic reform was approved in principle by the lower house. However, the extent to which these policies will be implemented, and the velocity at which they will redirect the Argentinian economy remains to be seen.

That is not to say that Milei is all bark and no bite. Since staking his claim on Casa Rosada, Milei and his entourage have devalued the peso by over 50%, and decreased public spending by approximately 3% of GDP. And, while this has garnered support from the IMF who have lauded such ‘bold initial actions’ and assured they will work ‘expeditiously’ with Milei’s cabinet in the coming months, it poses serious threats to the Argentinian people and economy in the near future. 

Devaluation refers to a country’s intentional downward adjustment of its currency value (Argentina’s Peso) relative to another (US Dollar). The primary goal is to make exports more competitive for foreign buyers while disincentivizing imports. This does not come without its threats. It is often the case that higher exports relative to imports can increase aggregate demand, a root cause of inflation. Moreover, if Milei’s end goal is complete dollarization, Argentina’s debt crisis could face further strain, especially with a deregulated central bank.  For Argentina, where national debt continues to spiral, devaluation is meant to offset fiscal deficits while stabilizing the Peso; but, further instability is not beyond the bounds of reality. 

Milei’s public spending cuts pose further threats to an economically crippled populus. Cuts to public spending tend to disproportionately affect society’s poorest. As of September 2023, Argentina’s poverty rate reached an all-time high of 40.1%. By targeting subsidies on essentials such as transportation, electricity, and water, Milei is sentencing nearly half of Argentina’s population to further economic mayhem–an issue which is compounded by Milei’s guarantee that things will get worse before they get better. Argentina’s economy is expected to shrink dramatically in 2024, with the inflation rate forecasted to peak at 250.6%.

Despite maintaining popularity, with 58% approval rating, Milei–and his promise for cuts–has sparked significant controversy and pushback from various quarters. Opposition parties and labor unions accuse him of promoting policies that prioritize the interests of the wealthy elite at the expense of the most vulnerable. They argue that his proposals for deregulation and austerity measures could deepen inequality, weaken labor rights, and undermine social safety nets. Recent protests against Milei and his policies reflect these concerns, with demonstrators expressing fears about the potential consequences of his radical agenda.

On January 24th, 2024, schools and businesses shuttered, flights were grounded, and the streets of Buenos Aires were chock-full as a nationwide protest against Javier Milei and his rabid reforms swept Argentina. It marks the first time in modern Argentinian history a mass protest has been called within the first seven weeks of a new presidency. More importantly, it epitomizes Argentina’s stark political divide. As Milei has said, “there are two Argentinas”, one that “wants to stay in the past, in decadence”, and the other–headlined by Javier–that is disillusioned by its desperation for change. 

Which of these two will be the true Argentina remains to be seen. While his radical policies like dollarization and the complete removal of the central bank will likely surmount to more bark than bite—given Liberty Advances holds just 10% of seats in the Senate and 15% in the lower house—they are a testament to just how far Milei is willing to go in the name of the free market. And as pressure and inflation continue to mount, time is of the essence for El Loco if he is to lift Argentina out of disaster.