The Gaucho economist's quixotic quest

What will happen as Milei charges Argentina's holy cows?

Argentine president-elect Javier Milei | Reuters Argentine president-elect Javier Milei | Reuters

The ballots were still being counted on election night when the first tremors of change reverberated through Argentina. As early results confirmed the presidential victory of libertarian economist Javier Milei, reactions ranged from exuberant cheers to anguished laments. For advocates, Milei's triumph represented a long-awaited reckoning to overhaul a failing status quo. For critics, his proposals evoked nightmares of social division and market turmoil. 

Milei shocked the Argentine political establishment by winning election on a platform promoting drastic libertarian economic reforms. His "Plan de Gobierno" outlines a transformative vision for a smaller state, free markets, lower taxes, reduced regulation, and privatization across major sectors.

If fully implemented, Milei's policies would significantly rollback government involvement in the economy and social services. Supporters believe this would spur growth, foreign investment, and empower individuals through less bureaucracy. Critics argue it risks weakening protections for the poor and vulnerable. The feasibility of achieving such an ambitious overhaul is also questionable given likely political opposition.

Milei is often compared to other right-wing populist leaders like Donald Trump or Jair Bolsonaro for his confrontational rhetoric. However, unlike Trump and Bolsonaro, Milei has deeply studied libertarian and Austrian school economics for decades. His policy platform reflects a cogent, long-held ideology rather than improvised campaign promises. This suggests a sincere commitment to the reforms proposed during his campaign.

Over the coming years, Milei now has a mandate to reshape the Argentine economy and state in his libertarian image. With strobe-light visions of smaller government, tax cuts, deregulation and privatization, his platform promotes a radically liberal prescription. Assembling the necessary political coalition to deliver such transformation will prove a Herculean task. Yet should Milei succeed, the policy impact promises to match the scale of ambition.

The elections have opened a portal into Argentina's unknown future. The course ultimately taken depends on Milei's ability to transition revolutionary campaign pledges into executable governance. 

As power changes hands this December 10 amidst upheaval and uncertainty, charting the next chapter poses complex questions regarding both the intended destination and viable pathways to reach it. One thing is clear though -- Milei's ascent ensures Argentina's status quo has already been permanently disrupted. The only matter still unsettled is what comes next.

State downsizing

Aside his flagship dollarization promise, another cornerstone of Milei’s plan is dramatically reducing the size and scope of government through closing multiple ministries and eliminating thousands of political appointments. Under his plan only the ministries of Economy, Justice, Interior, Security, Defense, Foreign Affairs, Infrastructure, and Human Capital would remain. Eight others would be eliminated.

Hundreds of government agencies, program analysts, and peripheral functions would be dissolved. Milei contends the current bureaucracy serves primarily as an inefficient jobs program for political cronies rather than benefiting citizens.

This austerity drive would require reassigning or laying off a substantial number of public sector workers. Milei pledges not to fire career civil servants, who would be redeployed to essential areas needing resources.

He does, however, plan to immediately remove all political appointees installed in 2023. Cutting patronage positions and perks like government chauffeurs aims to curb wasteful spending. 

Shutting down cabinet departments and pruning personnel numbers would concentrate power among a smaller group of ministry heads. Milei's appointments to lead these slimmed-down agencies would shape key decisions about distributing remaining resources. The ministries of Economy and Human Capital will likely have an outsized role overseeing economic and social priorities.

A major motivation behind downsizing the state is cutting fiscal deficits and ultimately taxes. Milei’s team believes trimming public expenditures by 15 per cent of GDP would allow abolishing 90 per cent of taxes while still balancing the budget. Critics counter that deficits also stem from shortfalls in revenue collection and doubt such large reductions are viable without severely deteriorating public services.

Economic liberalization

In Milei’s diagnosis, Argentina’s perpetual economic woes stem from excessive government interference in the free market. He advocates stripping away regulations and trade barriers to unleash the country’s productive potential. The scope of liberalization would be unprecedented in Argentina’s recent history. 

Milei’s multi-stage reform agenda begins by easing labor laws to reduce firing costs and encourage formal hiring. New unemployment insurance schemes would replace severance pay requirements. 

He also pledges sweeping unilateral trade openness by eliminating all tariffs, export taxes, quotas, and currency controls. The goal is making Argentina one of the world’s most open economies.

This trade liberalization could significantly expand agricultural exports like soybeans and wheat by removing retentions limiting producer margins. With over 60 per cent of Argentina's trade conducted with Brazil, Uruguay and Paraguay, joining the MERCOSUR common market also offers major growth opportunities if longstanding barriers are dropped.

However, domestic industries sheltered behind import substitution barriers for decades would suddenly face stiff competition. Milei's plan risks mass bankruptcies and job losses in uncompetitive sectors lacking time to adapt. Politically influential businesses also may lobby against losing protections.

Under Milei’s plan, the Central Bank would eventually be abolished entirely after rescuing all outstanding government bonds and liabilities. This exceedingly rare monetary move would permanently stop inflation, with currencies competing freely. Facing resistance, the president-elect has said that the closing of the central bank, another signature campaign promise, is a “non-negotiable matter”.

To attract foreign capital, Milei proposes long-term investment incentives like tax holidays paired with full currency convertibility and property rights guarantees. Privatization of money-losing state-owned enterprises is another priority.

If these policies succeed, advocates believe unleashing market forces would achieve sustained 4-5 per cent GDP growth. However, such rapid deregulation also risks severe economic dislocation. Critics point to real-world examples of overly rushed liberalization fueling instability in Latin America and post-Soviet states.

Social service reform

Milei’s small government vision extends to social programs, but his spending reduction promises worry both voters dependent on assistance and middle-class taxpayers fearing new outlays. He must balance fiscal conservatism with political realities. 

Milei pledges not to immediately cut off all welfare programs, acknowledging temporary continuance until growth creates jobs enabling self-sufficiency. However, he does plan to tighten eligibility rules and replace direct cash transfers with in-kind support like food baskets. Over several years, social spending would decline as a share of GDP.

On poverty alleviation, Milei wants to shift focus from handouts to nutrition, early childhood interventions, vocational training, microenterprise lending, and urban housing upgrades that provide pathways out of informal settlements. But enacting these policies requires identifying offsetting expenditure cuts or revenue sources.

With over 40 per cent of Argentines relying on state health coverage, Milei's proposed reforms aimed at increasing private competition could improve quality but risk denying care access if improperly structured. The viability of voucher systems depends heavily on subsidy levels and scope of services covered. 

In education, similar voucher-driven reforms empowering parental school choice could produce positive outcomes but require safeguarding equity for disadvantaged families. Milei still needs to detail regulatory changes preventing discriminatory enrollment.

Judicial, security and foreign policy reforms

An independent judiciary and strict rule of law are vital pillars of Milei’s pro-market agenda. He pledges reforms preventing executive interference in the courts while appointing apolitical judges respecting Argentina’s liberal democratic constitution. Normalizing relations with creditors and attracting investors will require reliable contract enforcement and protections against arbitrary state actions.

Without comprehensive judicial reforms, Milei would struggle to reassure foreign investors and local businesses over the security of private property rights and sanctity of deals. But pushing through changes without consensus risks accusations of undermining judicial independence.

Regarding citizen security, Milei promotes tighter policing and tougher penal codes to curb violent crime afflicting Argentine cities. Specific policies include easier firearm ownership, imprisoned drug traffickers, and additional powers for federal security forces against internal disorder threats. Critics argue such militarized approaches rarely improve safety and often erode civil liberties.  

On foreign policy, Milei advocates aligning Argentina with Western democracies to counter authoritarian regimes while fostering free trade agreements across Latin America. Seeking greater integration with the Pacific Alliance trading bloc could reinforce export diversification. Chinese involvement in sensitive infrastructure like ports and telecoms may also come under scrutiny given rising regional security concerns.

Assessing feasibility 

Enacting Milei’s full platform would completely upend Argentine politics and economics. Such systemic change generates both high hopes and intense pushback across the ideological spectrum. Realistically assessing what he can achieve requires examining the potential obstacles.

The most formidable barrier is institutional: large congressional majorities are often needed for structural reforms. Milei lacks an absolute majority in parliament and relies on uneasy right-wing alliances. 

He may gain leverage by threatening to veto legislation or block budgets but passing laws without concessions will prove difficult. This might force Milei to prioritize only 1-2 flagship issues like tax cuts or deregulation. Sweeping policy deals with the opposition could anger hardcore supporters. 

Bureaucratic resistance from entrenched interests is another impediment. Public sector unions will likely protest cutbacks and privatizations. Provincial governments control healthcare and education, complicating Milei’s voucher agenda. Even reforms not requiring legislation like removing import licences depend on compliant administrators. Pushback could significantly slow change.

Additionally, the sheer magnitude of Argentina’s economic imbalances raises transition risks. Implementing so many untested policies simultaneously in a volatile, crisis-prone economy may inadvertently cause financial turbulence. Markets can overreact to ambiguity. It would be prudent for him to phase reforms gradually.

Milei’s platform undoubtedly charts a radically innovative direction for Argentina. However, he faces substantial legal, political and socioeconomic constraints. Significant reforms are achievable in targeted areas like taxes, trade and welfare rules. 

But leapfrogging completely outside the bounds of precedent or consensus within one presidential term seems highly improbable given institutional realities on the ground. Striking a balance between ambition and pragmatism will ultimately determine Milei’s policy impact.

The ballots confirm an epochal political realignment -- but transforming rhetoric into real change poses an epic challenge. Either Milei succeeds in judiciously filtering proposals to pass epoch-defining reforms restoring liberty and prosperity, or he ends up disappointing supporters by overpromising unviable societal shock therapy.

Navigating these crosscurrents falls upon Milei’s young shoulders. From day one, his administration must align diverse factions while avoiding overreach that risks counterproductive chaos. Adopting an uncompromising stance could mean laws stall and hopes dashed if cooperation remains elusive. But compromising too much risks supporters decrying betrayed principles. 

The stakes for Argentina’s future could not be higher.


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