A man shows a newspaper during a demonstration against the new government of Argentine President Javier Milei in front of the National Congress in Buenos Aires on Dec. 21.LUIS ROBAYO/Getty Images
John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).
Can anything lift Argentina from its gloom? Beset with a boom-bust economy that on balance goes nowhere, wracked with an inflation rate nearing 200 per cent, its exasperated people looked for a radical solution to a perpetual problem. Enter Javier Milei. The newly elected President calls himself an anarcho-capitalist and came to the world’s attention with his flamboyant behaviour, alarming rhetoric and a hairstyle that makes him look like a 1970s boy-band tribute act.
Expressing admiration for Donald Trump, Mr. Milei had pledged on the campaign trail to abolish the central bank, dollarize the economy and take a chainsaw to the state. But once in office, to the relief of many, he quickly pivoted into being a fairly conventional Latin American shock therapist.
Out with dollarization and central-bank abolition, in with a standard package of neoliberal reforms: Halving the peso, in the hopes of boosting exports and cutting imports, thereby improving the country’s precarious foreign exchange reserves; halting public works and freezing public-sector salaries; raising taxes; and reducing subsidies for energy and transport. As if to confirm Mr. Milei’s return to orthodoxy, the International Monetary Fund gave the program its seal of approval.
But the tragedy of Mr. Milei is that he runs up against a powerful force against which he is utterly powerless: Argentina’s history.
It’s the country’s latest attempt to free itself from a seemingly endless cycle. A century ago Argentina was rich. But today Argentina’s per capita income is a sixth of Canada’s. It all began in the Great Depression, though you wouldn’t have noticed at the time, since Argentina actually weathered the Depression well, suffering a shallow depression from which it had largely recovered by 1935. Nevertheless, a pattern had begun.
Argentina began bouncing between growth phases and long periods of stagnation or contraction, the end result being an economy which largely stood still while the country’s politics descended into a cycle of democratic regimes punctuated by military coups. Such volatility is hardly conducive to the sort of long-term planning which drives major investment, but it also delivered wild swings in policy, as the country veered between conservative austerity (often under military rule) and populist expansion.
Argentina’s failures are easily blamed on poor leaders making bad choices. However, fate may have played a part, too. In part the fate of nature, since Argentina lacks the sort of resource endowment, especially in minerals, that can easily mask bad choices, but especially historical fate. Argentina is economically an unequal society, a legacy of the colonial era when Spain built its agricultural economy on the latifundia – large, privately owned agricultural estates.
Inequality has many deleterious effects on an economy, from limiting the local market to inhibiting human capital formation. But perhaps its strongest impact shows up in the politics it yields: Highly unequal societies tend to oscillate sharply in the manner Argentina has done.
In Argentina, populism took the form of Peronism, an eclectic, left-leaning but paternalistic ideology named after its founder, the postwar president Juan Peron, and which sought to elevate the working class while promoting domestic capitalists. Peronism has dominated most of Argentina’s democratic phases and its problem, as with many forms of populism, is that it tends to redistribute patronage without altering the structure of the economy. This kind of social revolution without economic revolution tends to produce increases in spending which surpass output rises, resulting in high inflation, such as that bequeathed to Mr. Milei by the outgoing Peronist administration.
That runaway inflation was one of the things that drove support for Mr. Milei, but he might just find that it will not help him govern.
For all Mr. Milei’s inflation-tackling efforts and no matter how shiny the IMF’s seal of approval, these new measures by him will actually increase inflation in the short term, as new taxes and subsidy cuts take effect. They’ll also cut growth, as government spending falls.
While one might justify this as the bitter medicine the country needs, if history is any guide, reform faces a rocky road. Mr. Milei has little support in Congress, while popular hopes of a new dawn will now give way to the realization that, at least in the short term, things will get worse.
Add to this that the only people who’ll really be happy for now will be rich investors, and the politics of his program could get fraught. Worryingly, given Mr. Milei’s own expressed willingness to resort to authoritarian measures, Argentina’s politics might well enter another repressive period.
Meanwhile, the fundamental problem remains. Neoliberal reform in a polarized society will likely reinforce existing fault lines, with positive macroeconomic indicators running alongside worsening social divisions, undermining the program’s sustainability.
If the fault of Peronism has been to try changing society without altering the economy, that of Argentina’s conservative interludes that Mr. Milei represents has been to reform the economy without altering society. Argentina may get a reprieve from its latest inflationary spiral, but its eternal cycle looks set to persist.