A new Argentina

Argentina was once the sixth largest global economy and the world’s agricultural superpower. Home to beautiful cities, beautiful people and a beautiful culture, Argentina was well on its way to becoming one of the world’s leading economies back in the 1930’s. Due to politically driven economic policies, however, the Argentine economy faltered, vacillating from boom to bust in the last 100 years. As of last year, Argentina faced another financial crisis with the specter of debt default.

But there is hope. Last November, anarcho-capitalist Javier Milei was elected president. He challenged the populist economic policies adopted by former Argentine leaders and promised radical changes to get Argentina’s financial house in order.

It will be recalled that Argentina swung between military rule and democracy throughout the 20th century. It was only under the administration of President Raul Alfonsin in 1983 that Argentina became truly democratic. Through it all, the only constant in Argentina’s economic policy was the principle of Peronism.

What is Peronism? Peronism is a political ideology authored by Juan Peron during his 10-year presidency that began in 1946. It is an ideology based on social justice (which prioritizes the protection of workers’ rights, the redistribution of wealth and the provision of social welfare programs); intense nationalism; corporatism (where government encourages a tripartite system of governance involving the state, businesses and labor unions) and populism, where the leaders pander to the desires of the masses.

Peronism calls for massive spending on subsidies, pensions and social development. It has resulted in chronic deficit spending, unmanageable debts and unbridled printing of the Argentinian peso. All these triggered runaway inflation and cycles of recession.

Drunk with subsidies dished out by government, the Argentine people have always elected politicians that espouse Peronism despite its toxic effects. Politicians belonging to the Partido Justicialista (PJ), the party that champions Peronism, were elected 24 out of 38 years since Argentina was democratized.

In 2015, Mauricio Macri, a non-PJ member, became president. Macri tried to balance the budget by reducing subsidies and cutting unnecessary spending. Inflation began to ease and the economy started to grow after nearly a decade of stagnation. But pressure from the general public to restore subsidies forced Macri to adjust his inflation cap from 12 percent to 15 percent. This allowed him to print money and spend more to satisfy the people. Investors lost confidence and the peso collapsed by nearly 100 percent. Argentina entered a bust cycle again.

Macri was not re-elected in 2019 and Alberto Fernandez, a Peronist, succeeded him. Fernandez continued the spending spree which resulted to inflation ballooning to 140 percent. By 2022, Argentina was in danger of defaulting on its $43-billion loan from the IMF.

Enter, Javier Milei

Milei assumed the presidency last December and promised to accomplish two things. The first is to massively cut the “orgy of spending” from 38 percent of GDP to 15 percent. His plan involved scrapping electricity and gas subsidies, scrapping 10 out of 18 government ministries, privatizing Argentina’s 34 state companies, adopting the public-private-partnership model for infrastructure development, adopting a voucher system for education and health care to minimize abuse and scrapping expensive pension for retired government workers.

The second is to dollarize the economy. Milei says this is the only way to impose fiscal discipline. Argentina’s central bank is notorious for simply printing pesos to finance its deficits. They cannot be trusted to do otherwise, asserted Milei. Thus, he wants the central bank scrapped too. Besides, the Argentine people already transact in the US greenback.

Milei acted fast. Within his first 100 days, he cut nine government ministries, slashed 50,000 government jobs, suspended all new public works contracts and revoked generous fuel and transport subsidies. He shut down the state news agency as well as the anti-discrimination agency. He removed funding for scientific research and the cinema industry. He devalued the peso by 54 percent and removed price controls. He even withheld aid for some 40,000 soup kitchens pending an audit of their operations.

As a result, Argentina posted a budget surplus for the first time in over a decade. It won the approval of the IMF which has a $44-billion credit program with the country. Milei’s stabilization program was bearing fruit.

But the road to reform is fraught with resistance. Milei does not have a majority in the legislature, hence, the full berth of his economic prescription continues to languish in Congress. Earlier this year, the Senate rejected a “mega-decree” that seeks to alter or repeal more than 300 existing laws, including removing rent caps and relaxing labor laws.

There has been public blowback as well. The austerity measures have caused the purchasing power of the Argentine people to plummet, causing more than half the population to slip into poverty. The collapse of consumption has also triggered an economic slowdown. With this, social unrest is simmering. Milei’s popularity is waning.

We, Filipinos, know the pangs of stiff fiscal discipline too well. We suffered through it from 1986 to 2010. But difficult as it was, we emerged financially stronger to a point where our economy is now classified as “investment grade.” The painful reforms have allowed us to achieve growth in a sustained manner without breaking the bank. Conditions always get worse before they get better.

Painful as Milei’s economic prescription may be, I reckon it to be the correct one. Peronism is simply not sustainable and must change. The country needs to live within its means to forever banish high inflation and the boom-bust cycle. It needs to get its financial house in order to achieve sustained growth.

We wish our Argentine friends well as they go through this difficult time of belt tightening. We, Filipinos, know and feel your pain.

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Email: [email protected]. Follow him on Twitter @aj_masigan.