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Geopolitical Futures
May 24, 2024
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The State of Argentina’s ‘Transformation’
Milei’s government has been more pragmatic than it said it would be.
By: Allison Fedirka
Argentine President Javier Milei will not be commemorating his country’s revolution on May 25 as originally planned. At the beginning of the year, he intended to use the holiday as an occasion to sign the Pacto de Mayo, a 10-point declaration meant to establish a new social contract and economic order for the country, one that he hoped would receive the support of political leaders from all parties and provinces. Instead, he will be in the city of Cordoba to give his state of the union address and oversee more modest ceremonial celebrations.

The government still has every intention to pursue the Pacto de Mayo, but Milei publicly pre-conditioned the deal’s signing on the passage of the Bases Law and certain tax reforms. These have been passed by the lower house of the Argentine legislature but still need to be approved by the upper. Put simply, Milei’s reforms are not advancing as quickly as he would like, pitting him against growing social pressure amid difficult economic conditions. Yet his government has proved more pragmatic than expected, so Milei may have more time to execute his changes.

One of the public’s biggest complaints is the decline of purchasing power, which owes to inflation brought on by the government’s decision to lift market controls. Private employees fared significantly better than public employees, with respective decreases of 11.2 percent and 21.3 percent. More concerning is that in the past six months, the country’s minimum wage has lost 29 percent of its purchasing power, pushing more people into poverty. Argentina’s Pontifical Catholic University estimates that the poverty rate now stands at 57 percent. While better insulated from economic shock, even the country’s upper class has started to feel the pinch as inflation outpaces favorable exchange rates and a sharp decline in disposable income.

Purchasing Power Decline
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Despite the Milei government’s extreme adherence to libertarian economic principles, it has shown a willingness to be less rigid in strategic moments and fairly responsive to social pressure. At the beginning of his term, for example, Milei allowed prices on all items to rise unchecked, only to later slow inflation by reducing the rate of subsidy cuts and putting price caps on certain items amid public backlash. In April, university students – a demographic that strongly supported Milei’s presidential candidacy – protested against what they saw as insufficient government funding and resources; weeks later, the government raised the functional budget for national universities by 270 percent. One of Milei’s first acts as president was to present a series of decrees meant to overhaul the economy and political system. When met with fierce opposition in the legislature and the judiciary, the government toned down its proposals in the more palatable Bases Law proposal currently making its way through the legislature. (The new version would still enable Milei to move forward with many of his desired reforms but requires less political sacrifice.)

Monthly and Annual Inflation Rates
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In fact, the Bases Law shows that the administration is capable of taking its time to advance reforms if doing so translates to more political support. Major components of the proposal call for the partial-to-full privatization of a handful of state-run companies and the scaling down of private companies to make them more efficient. Naturally, this upset Argentine unions, so the government is studying each case and entering negotiations with corresponding unions to make the proposal more palatable.

By insisting that the Pacto de Mayo remains on the agenda, the Milei administration has signaled its near-term plans to continue with reforms once the Bases Law is passed. Among the pact’s priorities are the schemes through which Buenos Aires funds the provinces, a renewed interest in provincial commitment to promote resource extraction, and the opening of the economy to international trade and commerce. The government also plans to reduce taxes on foreign currency exchanges, agriculture exports and financial transactions. It believes it will benefit from the planned cuts. The forex tax will support the elimination of the parallel exchange market, and the export tax will encourage exports and win favor among farmers, a large and influential group in the country. Unlike with the Pacto de Mayo, however, the government conditioned these moves on a resumption of economic growth rather than a particular deadline, thereby reducing the risk of embarrassing itself for taking longer than expected to deliver on plans.

Argentina | Exchange Rates
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Critics of Milei argue that the government is touting false progress and that deteriorating economic conditions are just the beginning of the country’s troubles. The government has trumpeted its success in no longer running a public deficit and reducing monthly inflation to a single digit. The counterargument is that annual inflation remains high, and recession and lower purchasing power abated inflation, not the government. Critics also argue that it’s easy to reduce a deficit when the government simply stops spending any money – a charge that isn’t without merit. Other concerns are the reforms’ knockoff effects, which include potentially increased unemployment and security problems. Emerging anecdotal evidence – such as construction workers being laid off due to less government-funded public works projects and a police strike in Misiones province – feed these concerns.

Argentina's Public Spending
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The problem with Milei’s approach to reform – which he has called “shock therapy” – is that it assumes and plans for the economy to get worse before it gets better. It is predicated on high risk and high reward. The Argentine economy appears in worse shape now than when Milei took office. However, under the shock therapy strategy, the economy would look this bad as a matter of course – even if it were successful.

At this point, economic health alone isn’t a reliable indicator of the potential success or failure of Milei’s planned overhaul. A more subtle look at the government’s response to political and social pressures shows that it may be adept enough to keep reforms moving forward. If that’s the case, the next big challenge will be fine-tuning the new economic model so that the changes stick.

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https://ncnewsline.com/briefs/a-proposed-nc-law-would-limit-family-and-public-access-to-death-records/?emci=3a1158ed-c019-ef11-86d0-6045bdd9e096&emdi=3a4f43ad-fb19-ef11-86d0-6045bdd9e096&ceid=244814

A timely reminder.   I just posted it on my FB page.