InsightsMaking a Meal-ei of it?

Making a Meal-ei of it?

Argentina’s economic outlook.

Argentina stands at a crucial juncture in economic policy, poised for substantial change under controversial right-wing populist President Javier Milei’s leadership. At the heart of this shift lies the proposed dollarisation of the economy and the potential abolition of the Argentine Central Bank. However, this transformative vision entails a complex landscape, encompassing challenges in implementation, the profound implications of adopting the US dollar as the national currency, an examination of Milei’s foreign policy stance and a deep dive into the critical sectoral priorities essential for Argentina’s future growth and stability. 

Challenges in implementing economic strategy 

The cornerstone of Milei’s economic strategy involves the highly debated concepts of dollarisation and the prospective overhaul of the Argentine Central Bank. “From an economic point of view, the dollarisation of the economy and the elimination of the Central Bank were two measures that were very difficult to implement, at least in the short term,” remarked a macroeconomist and business consultant.

These proposals face daunting hurdles, requiring Congressional approval and confronting intricate economic complexities, including currency shortages and substantial trade debts. Despite being touted as significant reforms, these ideas have been postponed for approximately 1-2 years due to various insurmountable issues. Notably, Emilio Ocampo, an advisor to Milei and “the main ideologue of dollarisation”, holds potential sway in reviving these plans in the future. The political scientist continued, “The last thing you heard Milei and his team say in the final part of the campaign, was that it wasn’t going to be eliminated entirely, but some of its functions that have more to do with government funding.” 

Minister Caputo, a key figure in Milei’s administration, advocates “that the fundamental solution is to attack the causes of the fiscal deficit, and not its consequences,” highlighted the political scientist and analyst. “It must also be said that, unlike other economists, he [Caputo] is not strictly opposed to dollarisation.” The head of one of the main local consulting firms elaborated, “he believes that it is not the time, and that it requires legal and financial engineering, which would take the focus off the main problem; the fiscal deficit.”  

This change could have far-reaching consequences, potentially impacting trade dynamics, foreign reserves and managing foreign debt. Minister Caputo cautions against over-reliance on dollarisation as the sole panacea for resolving financial issues. 

Milei’s Foreign Policy and Advisors 

The current foreign policy outlook under President Milei’s leadership in Argentina reveals a nuanced yet evolving international approach. Milei’s reiterated emphasis on aligning with the United States and Israel projects a clear foreign policy inclination.

However, his stance against nations like China, although “economic and financial needs, will sooner or later bring him closer to China”, Brazil, and Russia reflects a critical tone, potentially posing complexities in his diplomatic approach. “Milei is an up-comer to the political arena,” remarked the political scientist. “He doesn’t have a history from which you can analyse where he’s going, whether he’s been coherent over time, what the rationale of his mental structure is.” 

Milei’s reliance on advisors like Guillermo Francos, the Minister of the Interior, “both Diana Mondino, elected as Minister of Foreign Affairs and Luis Caputo, her Minister of Economy, play a very relevant role,” denoting his dependence on a blend of economic and political expertise. While Mondino and Caputo play significant roles in shaping foreign and financial strategies, the complexities surrounding international relations make it challenging to provide a comprehensive opinion on Milei’s international approach.

The shifting dynamics within Milei’s inner circle further add layers of complexity to his foreign policy analysis. “He will always listen a lot to those who speak in his ear.” The multimedia analyst elaborated, “the problem is that those who speak in his ear have been changing, which makes his analysis even more complex. 

In contrast to the previous government’s alignments, Milei’s administration exhibits a notable tilt towards the US and Israel, symbolically aligning with countries like Ukraine, by inviting the President of Ukraine to his inauguration, to show himself radically different from Alberto Fernández and his rapprochement with Putin.

Criticisms directed at China and Brazil, though rooted in Milei’s pragmatism, hint at a potential shift in international alliances driven by economic and financial needs. “The previous government clearly aligned with China, with Russia, with Venezuela, with Brazil. In this case, and knowing Milei’s pragmatism, we’re going to have to wait and see how improvised it is. Or not,” suggested the political analyst.  

This apparent shift in Argentina’s international economic relations is exemplified by intentions to ‘get very close’ with the European Union. Unlike the previous government, “the current foreign minister said that the idea is to close the EU-Mercosur agreement as soon as possible,” cited the macroeconomist. Moreover, Milei’s divergence from BRICS membership, guided by an almost principled stand, “not to be allies or to show himself together with countries whose leaders are the flip side of those he claims to be allies.” However, the interplay between Milei’s economic imperatives and pragmatism might lead to future recalibrations in his international approach. 

The intricacies of Milei’s foreign policy are underscored by his alignment and perceived closeness with former US President Donald Trump, raising questions about his future relationship with President Joe Biden. “There’s an issue there, without a doubt,” mused the macroeconomist. This nuanced interplay between business interests and geopolitics adds an additional layer of complexity to Milei’s foreign policy dynamics. 

Furthermore, there are indications of potential diplomatic movement with the Arab world, driven by Argentina’s “financial difficulties and the need for new partners when it comes to establishing new trade links for the country,” surmised a business consultant and head of one of the main local consulting firms. This signifies a potential avenue for Argentina to explore alternative economic ties amidst its ongoing economic challenges. 

Sectoral Priorities and Investor Concerns 

Milei’s administration lacks explicit sectoral growth plans, with short-term priorities centring on “how to get out of tariff arrears than how to make these sectors grow.” Sectors crucial to Argentina’s economy, such as energy, mining and infrastructure, anticipate a shift toward privatisation. However, concerns loom large amid the transition from public to private funding domains, with investors seeking clarity and certainty for sustained stability. As the business consultant also highlighted, “there are no known concrete plans for any of these sectors, at least for what has to do with plans to underpin their growth and development.” 

Regarding infrastructure, a similar trend is observed. There has been an announcement stating, “no more public works, that no new works will be tendered, and that the ones that are already tendered will not go ahead.” Projects currently underway will, at best, reach completion. Specifically, the alteration is not a complete cessation of public works but rather a shift in their financing model toward private sources. However, uncertainties emerge as not all projects garner private sector interest, where “repayment is almost impossible if it is not through public funds,” expressed the multi-media analyst. 

Milei’s administration has made initial announcements about energy, primarily the liberalisation of fuel prices, causing significant price hikes, “which has had an impact on increases of the order of 60% in one week”, albeit without clear long-term plans. This lack of definitive strategies extends to electricity and other services, emphasising rectification over sectoral growth. The medium-term vision involves privatising key state-owned companies like YPF and Enarsa, with “the same expected for public companies in other sectors, such as Aerolineas Argentinas and AySA,” explained the macroeconomist. “They will first have to be cleaned up and put in a position to be transferred to the private sector.” 

In the agricultural sector, the imposition of export duties, despite the sector already bearing such burdens, poses concerns not only for agriculture but also for regional economies, potentially leading to considerable economic repercussions.  

In mining, there appears to be a dearth of specific plans, as evidenced by appointing a previous energy sector official to lead the mining sector. This oversight suggests a lack of strategic planning aligned with the sector’s needs. As the macroeconomist expressed, “we sincerely do not believe that he [Mieli] has much prepared.” 

The major concerns across sectors relate to resolving macroeconomic issues like exchange rates, import challenges, currency transfers and existing restrictions before embarking on comprehensive development plans. “So far, markets have responded in a cautious manner.” The political scientist elaborated, “there was no fuss, but there was no running either, which is no small feat.” This hesitance underscores the need for stability and security in addressing these macroeconomic concerns 

Argentina’s global significance and economic potential invite substantial international interest, especially regarding potential investments in key sectors like mining, energy and knowledge-based industries. “In terms of the expectations of the international community, Argentina is a country that could be one of the top 20 countries in the world, so each change of government is usually received with great expectation,” clarified the business consultant. However, the international focus on Argentina might be overshadowed by global crises in regions such as Ukraine and the Gaza Strip, potentially diluting “attention”. 

Crucial cabinet members like the Minister of Economy, Minister of Foreign Affairs and Minister of the Interior are expected to play pivotal roles in steering Argentina’s economic and international agenda. However, Milei’s lack of comprehensive sectoral plans raises uncertainties regarding the trajectory of the country’s economic development and ability to capitalise on international interest. 

Change under Milei’s leadership 

Argentina’s economic outlook under President Javier Milei’s leadership heralds significant change, centralising around the contentious concepts of dollarisation and the potential eradication of the Argentine Central Bank. This transformative vision faces complexities spanning implementation challenges, implications of adopting the US dollar, Milei’s foreign policy stance and pivotal sectoral priorities essential for the nation’s growth and stability. 

Implementation hurdles loom large for Milei’s economic strategy, necessitating Congressional approval and confronting intricate economic intricacies. Proposals regarding dollarisation and Central Bank reforms, touted as significant reforms, have faced postponement due to insurmountable issues, emphasising the complexities involved. Milei’s advisors hold potential sway in reinvigorating these plans in the future, though Minister Caputo cautions against over-reliance on dollarisation to resolve financial issues. 

Milei’s foreign policy inclination towards aligning with the US and Israel diverges sharply from previous administrations, potentially signalling a shift in international alliances. However, criticisms directed at nations like China, Brazil and Russia may complicate diplomatic approaches. While intent on forging close ties with the European Union, Milei’s almost principled stand against BRICS membership might prompt recalibrations in his international approach. 

Despite Argentina’s global significance and potential for international investments, macroeconomic concerns demand resolution before initiating comprehensive development plans. Cabinet members like the Minister of Economy and Minister of Foreign Affairs are poised to play pivotal roles. However, Milei’s dearth of detailed sectoral plans leaves uncertainties regarding the nation’s economic trajectory and its capacity to leverage international interest. 

Recent updates and financial moves

If ‘Meal-ei’s’ plate wasn’t already full enough his financially strained government plans to raise USD 3.2 billion through a 10-year bill issuance to cover impending debt payments. Facing a severe economic crisis with surging inflation, dwindling reserves and escalating poverty, the new libertarian administration grapples with meeting obligations to the IMF and private creditors.

Despite expectations of IMF assistance, the move signifies the urgency for immediate funds, conflicting with campaign vows to limit central bank funding. Analysts highlighted ongoing concerns about the IMF’s delayed programme review and the strain on the central bank’s balance sheet. Argentina, historically facing economic challenges, recently paid USD 920 million to the IMF and faces another payment of around USD 1.95 billion in mid-January. 

Add another serving for the President as Argentina’s top court suspended Milei’s labour reforms, part of a vast “mega-decree.” The measures aimed at deregulating the economy face opposition from the General Labour Confederation, triggering a planned nationwide strike. The court decision halts enforcement until a final ruling on their legality, although Milei’s administration plans to appeal while facing challenges passing the reforms in Congress. 

Milei’s foreign policy orientation and ministerial alliances remain works in progress, subject to evolving geopolitical dynamics and economic exigencies. Argentina’s global prominence and interest from investors persists, contingent upon the government’s ability to strike a balance between immediate fiscal corrections and long-term economic growth strategies. Good luck Argentina, we are all rooting for you. 

About the Author

Jessica Wells
Jessica Wells
Jessica supports Deheza's executive team and leads the company's content and creative function. Previously she was a director of a global creative agency and held various roles in the events and entertainment industries.
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