In the recent elections, the majority of the population voted for the candidate Javier Milei, new elected president of the Argentine Republic. According to much of the media opinion, this was the case “because he interpreted the change better.” Although the candidate is “new,” in the sense that he does not have any public experience, what he proposes, from an economic point of view, is not so new.
In principle, given the current very high inflation, it is an adjustment and stabilization plan, as other candidates also proposed, but with more radical characteristics in principle, although these, little by little, are being diluted by the formation of the government and his alliance with Macri.
Each adjustment and stabilization plan in the past (there were many) has had its particular characteristics and circumstances. The most successful attempt was that of the former president Carlos Menem, admired by Milei, with the “convertibility law,” which lasted longer than any other.
The most positive aspect of this model, apart from the successful stabilization of prices, was the entry of “real” investments in various productive and export sectors (some of the “rain of investments” that President Macri mentioned in his mandate, but not they arrived). However, there are several significant differences with the current situation
To begin with, Menem initially had more public assets to sell or concession (about 25 billion dollars, at that time). Furthermore, in terms of its operation, the rigidity of the convertibility system – and dollarization would be even worse – led, unfortunately, to a predictable result. The control of hyperinflation led to recurring unemployment crises, which averaged 13% during the decade 1991-2001. During that period there were peaks of 18% in the “Tequila effect” of 1995, and 22%, at the end of the deflationary recession that led to the collapse of 2001-02. (For the same reason, the world abandoned the “Gold Standard,” of the 19th century – which had the same effects – at the beginning of the 20th)
Another important element of Menem’s stabilization and reforms, which is very different today, is the international context, dominated then by the “fall of the Berlin Wall,” the unipolar world, and the deployment of globalization. This meant having a very favorable investment climate, general optimism and abundance of capital. Milei, likewise, likes to praise Juan Bautista Alberdi (who was not a liberal-libertarian), but in that case we were also at the beginning of a very favorable globalization, after the repeal of the “Grain Laws” in Great Britain. Brittany. This inaugurated a period of very high trade growth for Argentina, in addition to immigration, investment in railways, refrigerated ships, etc., which promoted physical productivity and development, hand in hand with the “generation of 37”.
Today the technological revolution, largely focused on services (means of purchase and payment, etc.), social networks, and content, does not have a great impact on productivity, and the risk of technological unemployment appears due to artificial intelligence. (Regarding the difference in productivity in favor of the “old” versus the “new” economy, see: Robert J. Gordon The Rise and Fall of American GrowthPrinceton UP, 2017).
Likewise, globalization, measured in terms of GDP growth, migrant flows, capital, etc. shows clear stagnation. A – not very desired, nor very organized – reorganization of global value chains is taking place, and there is, due to the strong weakening of the rules-based international system, a very serious increase in the resort to violence and armed conflict, in a context of agonal geopolitical competition.
In short, how can we evaluate the chances of success of Milei’s plan? Geopolitics may help somewhat (the president-elect announced he will travel to the United States and Israel, and rules out political relations with China and Russia); Argentina is also a source of natural resources that are in high demand; and finally, we will see what can be sold or concessioned from public assets, in the style of Menemism.
In the latter there is a clear risk, regarding repeating similar situations from the past, in terms of directing decisions to the benefit of “friendly” sectors or companies. Milei criticized the “booty state” in his electoral winning speech, correctly pointing out that the growth of public spending makes it vulnerable to corruption. But we can associate this connotation even better with the metaphor of the “real estate” state, which earns “commissions” both when it buys assets and also when it sells them (a national passion, it seems, remember the sad story of the battered YPF, which is bought and is sold every few years). Milei fell short with his definition of “caste,” because there can be cronyism and corruption both in the process of “enlarging,” and also in “shrinking” the state, without taking into account regulatory and economic policy preferences.
These reasons make it probable that, initially, there may be some good news, especially in the financial field (some of which can already be seen these days). But also, at some point, the calculation may begin about how long the speculative bonanza will last. Many markets today show “bubble” behavior, for example cryptocurrencies – also highly valued by Milei – to name just one.
* Doctor in Economics. Professor and researcher at the Faculty of Economic Sciences of the UCA.
by Marcelo F. Resico
