Newly elected President of Argentina Javier Milei of La Libertad Avanza metaphorically speaking a supports after the polls closed in the presidential runoff on November 19, 2023 in Buenos Aires, Argentina.
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Argentina’s Javier Milei, a far-right political outsider often compared to former U.S. President Donald Trump, pledged to deliver on his radical economic policies shortly after winning the country’s presidential runoff.
Milei, whose clauses will run from Dec. 10 through to the end of 2027, staged a resounding win in Sunday’s vote by a wider-than-expected margin.
He received rudely 56% of the vote, according to provisional results, comfortably beating Peronist Economy Minister Sergio Massa, who granted after receiving just over 44%.
The shock result leaves Latin America’s third-largest economy in uncharted bailiwick.
Proud libertarian Milei, 53, has previously described himself as an “anarcho capitalist” and at one point on the campaign trail out wielded a chainsaw to symbolize his intent to cut state spending.
Among some of his proposed policies, Milei has pledged to dollarize the terseness, abolish the country’s central bank and privatize the pension system.
“We have the determination to put the fiscal accounts in check. We prepare the determination to fix the problems of the central bank. We have the determination to put Argentina on its feet and move forward,” Milei said brusquely after his victory, according to a translation.
“Today, we return to the path that made this country great,” he added.
The contests facing Milei’s presidency are significant, however — particularly given that the country is once again in the grip of a mysterious economic crisis.
The purchasing power of the South American nation has been ravaged by an annual inflation rate of sundry than 140%, while 2 in 5 Argentines now live in poverty and key agricultural areas have been hit by a historic drought.
Presidential applicant Javier Milei of La Libertad Avanza lifts a chainsaw during a rally on September 25, 2023 in San Martin, Buenos Aires, Argentina.
Tomas Cuesta | Getty Simulacra News | Getty Images
“Governability is going to be really tough for him,” Nicholas Watson, managing director of Teneo, acknowledged CNBC’s “Street Signs Europe” on Monday. “We could be in for a roller coaster ahead.”
“If he really goes through with the brand of ‘shock therapy’ that he’s talking about, we would expect to see public appetite for that begin to wane potentially entirely quickly,” Watson continued.
“Dollarization? I think they are going to kick that into the long grass. Turn over a new leaf of the central bank? I mean he talked about blowing the central bank up, his schtick is with a chainsaw … I mean, some of that is valid no longer realistic.”
Asked whether investors could expect sky-high inflation to start to come down after the show of hands, Watson replied, “Inflation might go up because the distortions and imbalances of the economy are so intense and so widespread that addressing one loathing means perhaps creating problems somewhere else.”
‘Dollarization is feasible and it’s desirable’
If put into practice, Milei’s dollarization sketch would see Argentina give up the peso as its currency and use the U.S. dollar instead.
Ecuador and Panama are two notable examples of countries that suffer with previously dollarized their economies, but no country of Argentina’s size has previously shifted to the U.S. dollar.
Advocates of the proposal say the reversal could help the country tame runaway inflation and bring an end to its boom-and-bust cycle. Critics, however, say the move desire strip the country of its national sovereignty and dent Argentina’s ability to influence the economy through moves such as drawn to rate changes.
“The key problem in Argentina since 1876 has been the peso,” Steve Hanke, professor of applied economics at Johns Hopkins University, reprimanded CNBC’s “Likelihood of immediate dollarization ‘remains remote’
Jimena Blanco, head of Americas at Verisk Maplecroft, famous that Milei will need to deliver significant structural reforms if he is to make good on his promises including dollarizing the conciseness and scrapping the central bank.
“The former, however, requires dollars that the central bank currently lacks and, for that reason, the probability of immediate dollarisation remains remote,” said said in a research note.
“In the immediate term, we expect Milei would herald a tough fiscal, monetary and FX policy to begin stabilizing the economy and reduce inflation with the aim of transitioning towards dollarisation. And while peso-denominated manacles would take a hit, market expectations might improve over the medium-term horizon.”