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A Presidential Win for Milei Would Herald a Macroeconomic Experiment for Argentina

Marina Daley | Latin America Fellow

Javier Milei’s economic plan is just another one of Argentina’s macroeconomic experiments.

Argentina’s runoff presidential election on 19 November will be a tense face-off between the old establishment candidate, Sergio Massa, against a controversial outsider, Javier Milei. It follows the first round of presidential elections on 22 October, where Milei, the expected winner, only secured 30 percent of the 45 percent needed to win, while Massa obtained 37 percent. This important election will shape the future of Argentina’s economy – whether it will continue its present path under Massa, the current Minister of Economy, with inflation reaching 138 per cent, or a new path under Milei.

Milei contentiously proposes dollarising the economy and eliminating the central bank in a bid to control inflation. As the first right-wing populist candidate to have won a presidential primary since the end of the country’s military dictatorship in 1983, he is a provocative figure. He seeks to transform the country through policies such as reducing public spending and taxes, decreasing the number of government ministries from nineteen to eight and cutting funds allocated to retirement and pensions. A self-styled ‘anarcho-capitalist’, he is an economics professor and found fame as a commentator on television chat shows. If elected, Milei’s economic policies will be another one of Argentina’s macroeconomic experiments that its leaders have enacted as an attempt to stabilise its economy.

Although rich in agricultural land and minerals, Argentina’s economic history is marked by fourteen economic crises since 1950 and nine sovereign debt defaults, underpinned by oscillating macroeconomic policies. With the armed forces overthrowing six governments between 1930 and 1976, only transitioning to democracy in 1983, political instability has contributed to the extreme shifts in policies. Argentina’s leaders have swung from implementing policies of self-sufficiency, neoliberal economic reforms, and International Monetary Fund (IMF) repayment plans, marking Milei’s proposal as just another addition to its history of extreme economic transformations. Argentina began the last century with its GDP per capita higher than that of Germany or France, and with dire current conditions, it is desperate to challenge its downward trend in prosperity.

Milei seeks to control inflation by eliminating the central bank, thus ending the government’s ability to print money, and adopting the US dollar as its currency. One of the key ongoing structural issues the incoming President will face is managing inflation, which averaged 190 percent between 1944 and 2023, peaking at 20,000 percent in 1990. This inflation is linked to the growth of public spending and state intervention, leading to deficits financed by printing money.

Milei also seeks to dismantle much of the populist economic policies linked to Peronism, which has been the political mainstream in Argentine politics since 1946, albeit with a few, short variations throughout. Peronists sought to address the needs of their main voter base through giving workers greater rights and redistributing wealth; however, this has resulted in high government spending and interference. Currently, 55 percent of workers are government employees, a contrast to 16 percent in Australia. For this reason, Massa, from the governing Peronist coalition, is strongly opposed to Milei’s policies, arguing that he is a safer candidate.

A similar policy was attempted by President Menem in 1990 when he pegged the currency to the US dollar. This successfully reduced inflation, but led to increased government debt to fund convertibility, ending in an economic crisis which lasted four years. The failure of the current Peronist president, Alberto Fernández, to manage steadily increasing inflation since early 2022, has left him with a 75 percent disapproval rate. This, alongside the statistic that 40 percent of Argentines live in poverty, explains public discontent with the current state of affairs. Under these conditions, Milei’s popularity is justified, considering his anti-establishment stance. Even young voters resonate with him, seeing a limited future for themselves with youth unemployment doubling the national average. Whether dollarisation will modify Argentina’s trajectory is much debated, but the average Argentinian appears willing to weather another macroeconomic experiment, with the hopes that it will bring the change needed.

A key obstacle to dollarisation is the insufficient sum held by the central bank to cover deposits. Milei claims that this can be overcome by privatising government entities and replacing the public health system with a privately-run model. Another possible source of dollars are Argentine citizens and businesses. They are responsible for the continued capital flight since the 1970s, as they struggled to trust the Argentine peso. This has created significant Argentine offshore wealth, much of it held in US dollars, estimated between US$180 billion to US$368 billion, which may return to Argentina once dollarisation is achieved. However, the value of the Argentine peso is currently falling, with Milei discouraging Argentines from holding any investments in the currency. He has been accused of worsening the current crisis by past presidential candidate Patricia Bullrich. Argentinians do not trust their own currency, and their decision in the November election will influence whether use of the Argentine peso will persist.

Argentina is at a crucial juncture as it approaches its upcoming election. Milei’s platform, though bold, is just another addition to the country’s history of extreme economic transformations. Argentinians want a guarantee of economic stability and Milei is the only candidate offering a clear break from past policies. With the country in its worst economic crisis in decades, they may be willing to bear the economic cost of his policies. Even if he wins the run-off, the question remains whether he will be able to demolish the status quo.

Marina Daley is the Latin America Fellow for Young Australians in International Affairs.


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