A faint chance of success for Javier Milei

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From defaulting to the World Bank to making it a literal criminal offence to publish accurate inflation statistics, there are few bounds of good governance that Argentina hasn’t gleefully crashed through over the decades. The election of soi-disant “anarcho-capitalist” Javier Milei as president, replacing the leftish populist Peronism of Alberto Fernández, promises a new and exciting chapter in the story.

The headline source of cataclysm is Milei’s proposed domestic economic shock therapy — replacing the peso (which he describes as “excrement”) with the US dollar and slashing government spending by 15 percentage points of GDP — which promises to make him a Latin American Liz Truss raised to the power of 10. His camp’s disturbing links to Argentina’s dictatorial past also threaten to inflame divisions in an already fractious country. 

The electoral endorsement of his economic ideas in a fairly prominent member of the “global south” — Argentina, a member of the G20 of large economies, has applied to join the “Brics” emerging markets grouping — erodes a little more the idea that said category of nations has any enduring common geoeconomic orientation. Under Fernández, Argentina has embarked on borrowing renminbi through swap lines from the People’s Bank of China, part of a supposed de-dollarisation of the global financial system. The election of a president hankering for adopting the US currency is a massive and abrupt reversal.

In reality, it’s unlikely Milei will get support for his monetary and fiscal shock therapy through the Argentine congress. His international policies, though, will still disrupt the idea of a “Global South” order. Milei has described the government of China as an “assassin” and called President Luiz Inácio Lula da Silva of Brazil “corrupt” and a “communist”. More substantively, he’s threatened to pull out of the South American four-nation Mercosur trade bloc, currently in highly delicate late-stage negotiations to ratify a draft trade deal with the EU.

Leaving Mercosur isn’t Milei’s craziest idea. The bloc has not been a successful engine of liberalisation and growth. It has enough trouble reducing barriers to trade between its members, let alone opening their economies up to the rest of the world. Its trade deal with the EU took 20 years of talks to get to signing stage in 2019, and ratification has since been held up over Brazil’s wish to change the deal to retain more control over public procurement, together with EU concerns about deforestation of the Amazon.

The situation, though, potentially presents a narrow opening for the forces of moderate economic liberalism in Argentina to assert themselves and at least make a gesture to a co-operative middle way between statist populism and scorched-earth libertarianism — and between advanced and emerging economies. Milei’s minimal representation in the congress means he will be heavily reliant on the supporters of Mauricio Macri, his predecessor-but-one as president — perhaps the reason for the financial markets’ optimistic reaction to Sunday’s result.

Macri’s presidency was a big missed opportunity. He had many of the right ideas, finally concluding the sovereign debt restructuring from a sovereign debt default in 2001 and signing the EU-Mercosur deal. But he lost his nerve and backslid on controlling inflation.

If Macri can nudge Milei in the direction of co-operation, something of use might emerge. Concluding the EU-Mercosur deal, for one, would show that richer and poorer countries can cooperatively liberalise trade while protecting their respective values.

The timing here is intriguing. Paraguay, whose president favours the deal, will take over the presidency of Mercosur on December 7 and insists that any revised deal must be finalised before then. Milei’s swearing-in date of December 10 creates the intriguing proposition of bouncing him into agreeing a revised EU-Mercosur agreement rather than trashing the trade bloc altogether.

Lula, who previously sounded highly sceptical about the EU-Mercosur deal, has engaged closely in negotiations with Brussels in recent weeks, aiming at the December 7 deadline. There’s still not a great chance of success on this timescale, given the suspicions that have to be overcome. Milei will also have to swallow his own climate change denialism at record speed, given the pact’s environmental commitments. But agreeing it would be an effective way of showing that emerging and advanced economies can co-operate.

To be realistic, given the disastrous legacy of high inflation, low growth and a collapsing currency he’s inherited, the Milei government will probably crash like most of his predecessors. The last Argentine president to promise deregulation and a tough currency regime failed badly. Carlos Menem, in power between 1989 and 1999, fixed the peso to the dollar in 1991 and went on a privatisation spree, but uncontrollable government spending meant the experiment ended in default and devaluation a decade later.

But if Milei wants to pick his battles — and his allies — with considerably more finesse than he has shown hitherto, there are at least some things he could do along the way. Scoring some successes for economic rationality in Argentina is improbable, but Mercosur’s trade deal with the EU is one that’s not entirely out of the question. 

alan.beattie@ft.com