/ world today news/ The clear victory of Javier Miley in the presidential elections in Argentina, based on his pre-election rhetoric, was supposed to be the beginning of large-scale reforms and a completely new economic course with the rejection of the national currency.
However, it is already clear that the real consequences of his policies will be much more modest than expected – and in any case they will be costly.
The clear victory of Javier Maili in the presidential elections in Argentina, based on his campaign rhetoric, was supposed to be the beginning of large-scale reforms and a completely new economic course with the rejection of the national currency.
However, it is already clear that the real consequences of his policies will be much more modest than expected – and in any case they will be costly
The Argentine government plans to cut government spending by almost 3% of GDP by cutting subsidies for electricity and transport and reducing the number of ministries from 18 to 9.
The tax on imported goods will increase to 17.5% (from 7.5%). Although on September 19, 2023, during the election campaign, Javier Maili vowed not to introduce a tax on imports.
The oath was accompanied by the words “I’d rather cut off my hand than raise taxes.” At this point, he did not hesitate to call the state “a brutal criminal organization that lives on the racket called cultural taxes.”
Treasury officials announced a 5 percent reduction in the budget deficit next year by resetting infrastructure spending, devaluing the Argentine peso by 50 percent and cutting federal transfers to the provinces.
It is worth noting that the Ministry of Finance is headed by Luis Caputo, who held the same post under former President Mauricio Macri and took positions diametrically opposed to those declared by Miley.
Miley himself no longer talks about the dollarization of the Argentine economy, which was one of the markers of his election campaign.
On November 26, the president-elect’s office issued a statement confirming that dollarization (and the abolition of the central bank) are not currently on the agenda.
The official increase in the peso’s exchange rate from 400 to 800 triggered a new round of volatility in the Argentine currency; the real peso exchange rate has risen to 1150 per dollar (+10%) since last week.
It will also be difficult to implement dollarization due to the purely Argentinian invention of “leliqs”. Leliqs are short-term bonds of the Central Bank of Argentina that make up 40% of the Central Bank’s assets. According to them, the Central Bank undertakes to pay 100% annually – but at the expense of new bonds.
For many years, the main source of profits for Argentina’s private banks was not their normal trading operations, but the interest they earned on leliqs – whose average maturity was no more than 28 days. Thus the fate of the national banks was tied to the fate of the central bank.
Miley’s first financial task will be to restructure debts based on leliqs. Somehow they must be converted into long-term liabilities and backed by cash.
Otherwise, you will simply have to forget about all previous economic relationships and financial obligations, starting from scratch.
The central bank does not have the assets to allow it to pay off debts with “real money” and simply does not have the necessary dollars for dollarization. And acquiring them will not be easy.
Dollarization is not Miley’s invention. For many South American countries, this is an inevitable stage of functioning in the US financial orbit. A striking example is Ecuador, where dollarization was implemented in 2000 at a fixed rate of 25,000 sucres to the dollar.
This experience is often called a great economic success because it started a process of financial Darwinism that destroyed a huge number of banks, leaving mainly those that served the interests of foreign investors and had access to currency. This is interpreted as creating a favorable investment climate.
What Miley’s actions will lead to is a serious split in Argentine society. Financial and economic players are well aware of Ecuador’s experience, and the new president’s desire to disrupt the established order may arouse the support of the population – but even half of the elite will not approve of this.
Miley also has no control over parliament (Argentina’s ruling Union for the Fatherland coalition maintains a relative majority in both houses), meaning his activities will be limited to presidential powers.
It is possible that Miley’s actions will provoke a “liberal revolution”: the president will have a mandate of confidence from a significant part of the population for about a year, and the economic situation in Argentina is quite suitable for various social upheavals.
The budget deficit is about 15% of GDP, the acceleration of money creation will provide 15,000% of inflation in the next two years (or more), the national debt exceeds $100 billion, roughly half the population is below the poverty line.
But even if Miley succeeds in gaining control of parliament and securing the legislative implementation of his ideas, this will not provide the technical basis.
Only the US can give dollars, and with the intention of earning, which will mean strengthening the American presence in the Argentine economy, reducing it to a de facto colonial status. This is a poor basis for raising the level of welfare of the population.
It may turn out that Miley’s Argentina will not be able to fulfill even the chaotic program that the current president has presented to the citizens.
Therefore, another promise made by Miley – to part ways with BRICS as an “unprofitable” alliance – may also not be fulfilled. The BRICS market is huge, it is easier for Argentina to enter it than for the US, and the yuan for payments on those elements of foreign trade relations that are relevant to Buenos Aires is no worse than the dollar.
Translation: SM
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