Argentina Takes Leap Into Unknown With Javier Milei as President

(Bloomberg) -- Libertarian outsider Javier Milei won Argentina’s presidency promising a radical shakeup to fix decades of policy mismanagement, a strategy that resonated with a populace suffering under a nosediving economy and one of the world’s fastest inflation rates.

Most Read from Bloomberg

With 99% of ballots counted after Sunday’s runoff election, Milei took 56% of the votes to 44% for Economy Minister Sergio Massa of the incumbent left-wing Peronist coalition, according to the official electoral authority. The scale of his victory was unexpected, and Massa conceded before the results were released.

“Today starts the rebuilding of Argentina,” Milei told the jubilant crowd at his campaign headquarters in Buenos Aires, while supporters flooded the capital waving the national flag. “There’s no room for gradual measures.”

The result hands Milei a mandate to pursue campaign pledges including ditching the peso for the US dollar and shuttering the central bank, while undertaking drastic cuts to public spending in an attempt to jolt the country of 46 million out of its malaise.

Yet Milei’s brand of shock therapy sets Argentina on a path of deep uncertainty, with some economists warning that dollarizing the $622 billion economy at a time when international reserves are depleted could tip the South American nation into another bout of hyperinflation.

International Monetary Fund officials have meanwhile called on the next government to swiftly reset the economy, emphasizing that there’s no time for gradual policies. IMF Managing Director Kristalina Georgieva congratulated Milei on X in the fund’s first official comments since the election, saying “we look forward to working closely with him and his administration.”

Read more: Argentina’s Economy Is Abnormal and These Six Charts Show How

“Argentines chose another path,” Massa told his supporters, calling on Milei to meet with President Alberto Fernandez and ensure economic and political certainty during the transition and give institutional direction to the country. Milei is due to take office Dec. 10.

The fact that Argentines opted for radical change instead of the continuity offered by Massa and the once all-conquering Peronist movement is testament to the pain they are feeling as inflation gallops toward 143%, robbing them of their buying power.

What Bloomberg Economics Says

“Milei’s ambitious vision of a market-friendly, small-state, dollarized Argentina will finally be put to test. He has yet to clarify on timing and process for dollarization — which, with negative reserves, doesn’t seem feasible for the near term. His ample victory gives him political capital to move ahead with his economic agenda, but doesn’t shield him from the political costs from the measures he needs to implement to make good on his promises.”

— Adriana Dupita, Latin America economist

— Click here for the full report

Attention will now turn to how Milei implements his most contested measures with only a handful of representatives in a fragmented congress and an impatient electorate, with more than 40% of Argentines below the poverty line.

Before then, the central bank has nearly run out of international reserves to prop up the peso, meaning a large currency devaluation is expected any day now. Monday is a public holiday in Argentina but the country’s offshore assets will be trading in international markets.

Click here to see a Bloomberg Television interview with Javier Milei from August

“A period of long uncertainty starts,” said Daniel Kerner, Latin America director at Eurasia Group. “Milei doesn’t have a team and his plan is very difficult to implement. And he will have an opposition very mobilized from the beginning.”

Chainsaw cuts

A one-time legislator without executive experience, Milei, 53, built his platform by linking Argentina’s history of high inflation to a decay in the political class through expletive-filled tirades in TV talk shows. Illustrating his pledge to drastically reduce the size of the state, Milei regularly said he would shred it to pieces as he wielded a chainsaw at huge street rallies, which became a symbol of his defiance of the status quo.

Despite his non-existent party structure, Milei placed first in an August primary, shocking the political establishment and revealing the depth of voter anger with their current leaders. His win triggered a fear-mongering campaign by Massa that flipped the primary result in October’s first-round vote, when the main pro-business bloc of former President Mauricio Macri, now led by Patricia Bullrich, was eliminated.

Bullrich subsequently endorsed Milei, who held a narrow poll lead over Massa going into the runoff. Milei managed to hold off a unified Peronist movement that mobilized its formidable political machinery to try to retain power, but the scale of Argentina’s economic misery was too great for Massa’s presidential bid.

Click here to watch the interview in Spanish.

China, Brazil

The win for the free-market theorist is at the same time a loss for Brazil and China, Argentina’s two top trading partners. Milei said throughout his campaign he would freeze relations with the economic powerhouses because they are “socialists.”

Milei went so far as to refer to China as an “assassin,” and then clarified that he would still allow free trade between private enterprises, illustrating the challenge he faces in turning campaign rhetoric into reality. Total trade with China and Brazil was worth some $55 billion last year, almost three times the value of commerce with the US, Argentina’s No. 3 trading partner.

Brazilian President Luiz Inacio Lula da Silva, who openly backed Massa, wished the new government success without mentioning Milei in a post on X, the platform formerly known as Twitter. “Brazil will always be ready to work with our Argentine brothers,” he said. Donald Trump and Elon Musk were among those to congratulate Milei.

Unmarried and with a coterie of dogs named after economists, Milei will be Argentina’s first formally-trained economist elected to the top job — credentials he’ll need to tackle the titanic task of fixing the crisis-prone nation when he assumes office.

Argentina faces external debt payments of $22 billion next year including interest due to international bondholders and the IMF that will require “a big current account surplus amid a stabilization plan,” according to Martin Castellano, head of Latin America research at the Institute of International Finance.

The fate of Argentina’s $43 billion program with the IMF now falls to Milei. The program, one of the few sources of international financing for Argentina, is way off track as Massa hasn’t complied with any of the key targets that are usually crucial for the IMF to continue disbursing money.

--With assistance from Scott Squires, Walter Brandimarte and Julia Leite.

(Adds official comment from IMF in sixth paragraph.)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.