Milei has already begun to backtrack on some of the key proposals of complete dollarisation and shutting down Argentina’s central bank, arguing that it will take time to achieve given the economic crisis.
LONDON
Well, that didn’t last long. “We will not join the BRICS”, said Diana Mondino, who will serve as Argentina’s top diplomat in the government of President-elect Javier Milei when he is sworn into office today. Only last August at the summit in Johannesburg, members of the bloc consisting of Brazil, Russia, India, China and South America invited Argentina, along with five other countries, to become new members. It was planned that Argentina’s membership would have taken effect three weeks tomorrow, along with Egypt, Ethiopia, Iran, Saudi Arabia and United Arab Emirates. Now the expanded BRICS will consist of ten countries on 1 January 2024 instead of the planned eleven. Although Mondino’s announcement appeared to be a bolt from the blue, no-one who followed the far-right populist Milei’s election campaign would have been surprised. During the campaign he criticised Brazilian leader Luiz Inacio Lula da Silva many times, labelling him an “angry communist” and “socialist with a totalitarian vocation”. Brazil is Argentina’s biggest trading partner. Milei also harshly criticised China, comparing the government to an “assassin” and threatening to cut off ties. “I would not promote relations with communists, whether it’s Cuba, Venezuela, North Korea, Nicaragua, or China”, he said in an August interview on Bloomberg Television. China has been a major investor in the Argentine economy and Beijing had been concerned that an anti-China administration in Buenos Aires could harm China’s extensive interests in the country, ranging from mining to a secretive space station China operates in Argentina. Knowing Milei’s anti-Beijing stance, President Xi Jinping had bet heavily on the Peronist’s candidate, former Economic Minister Sergio Massa, even releasing a $6.5 billion in yuan into the two countries’ bilateral currency swap account just before voting took place, hoping to help prop up the Argentine economy and prevent further currency devaluation prior to the election. It turned out to be a bad bet by Xi.
In the event, Javier Milei won by a surprisingly large margin of twelve points in the presidential election on 19 November. Now the big question is whether he can turn around the country’s crisis-stricken economy. Milei campaigned on the promise of deep spending cuts and dollarisation, the idea of replacing the Argentinian peso with the US dollar. In promising shock therapy for Argentina, Milei also campaigned on plans to shut the central bank and slash spending. But all this will be hard to implement given the country’s political and economic realities.
After the result of the poll was announced, Milei made his customary defiant speech. “The model of decadence has come to an end and there’s no going back”, he declared. He then raised the challenges that faced the country: “we have monumental problems ahead—inflation, lack of work and poverty. The situation is critical and there’s no place for tepid half-measures.” In fact, Milei’s challenges are even greater than monumental. Government coffers are empty and there’s also the not-so-small matter of a $44 billion debt program with the International Monetary Fund. The country has a dizzying array of capital controls and a humongous inflation rate nearing 150 percent. In an attempt to curb the runaway inflation, in October Argentina’s central bank had raised the benchmark rate of interest to an astonishing 118 percent. Milei’s victory marked a profound rupture in Argentina’s system of political representation. The 53-year-old economist and former TV personality shattered the hegemony of the two leading political forces that have dominated the country’s politics since the 1940s: the Peronists on the left and Together for Change on the right. His opponent, the 51-year-old Peronist candidate and experienced wheeler-dealer, Sergio Massa, had sought to appeal to voter fears about Milei’s plans to cut back the size of the state as well as his volatile character. In the early part of the campaign Milei outrageously carried a chainsaw as a symbol of his planned cuts, but decided to shelve it in the weeks before voting took place in order to help boost his moderate image. Massa’s appeal went unheeded.
So now the hard work begins. In recent years, Argentina has lurched from one profound economic crisis to another. The country is also currently in recession, fuelled by a three-year drought that has done much damage to agricultural exports. The harvest of soybeans, one of the nation’s biggest exports, is barely one-third of five years ago. All this is exacerbating the cost of living crisis, which has already driven poverty levels above forty percent. Meanwhile, Argentina holds the unenviable position of being number one on the debtor list of the IMF. Stringent currency controls have made it hard to move money out of the country, which has led to a black market in pesos whose value has also been falling sharply. During election debates, Milei argued that by stopping the central bank from printing more money, which it has relied on to finance public spending, and replacing the peso with the US dollar, inflation would be cured. Sceptical critics claimed that this would be impractical as the central bank would lose control over monetary policy, and in any case Argentina has insufficient currency reserves to implement the plan. Milei’s dollarisation plan is also a worry for economists; but political opposition and Argentina’s lack of foreign reserves make the chances of that happening narrow at best. As so often when populists meet reality, since his victory Milei has already begun to backtrack on some of the key proposals of complete dollarisation and shutting down Argentina’s central bank, arguing that it will take time to achieve this given the economic crisis. His pragmatism is also likely to extend to foreign policy.
While Milei’s control over Argentina’s economic fate is limited, he’ll have an element of free reign over the country’s foreign policy. During the campaign he announced some very large shifts in Argentina’s relationships with other countries. The outgoing President Alberto Fernandez had pursued a foreign policy aligned with many of his leftist counterparts in South America, including Brazilian President Lula da Silva and Colombian President Gustavo Petro. Fernandez built political alliances through the Community of Latin American and Caribbean States and recently convinced the BRICS member states to make Argentina one of the countries included in the organisation’s first expansion. The far-right populist Milei plans to undo all that.
During the election campaign, Milei insisted that his foreign policy would strengthen ties with the “free world” and avoid contact with communist countries. After the primaries, he indicated that he would freeze official trade relations with China, but his campaign rhetoric is already giving way to pragmatism. Since his win, Milei has softened his stance on Beijing in view of China being Argentina’s second largest trade partner, accounting for nearly ten percent of all Argentinian exports. He has also sought to mend fences with Brazil’s President Lula by inviting him to today’s inauguration, an invitation which Lula snubbed by nominating his Foreign Minister Mauro Vieira in his place. Maybe it’s also because Lula’s arch rival, former Argentine President Jair Bolsonaro, has accepted an invitation to attend. Javier Milei is hardly the first of that country’s leaders to come to power boldly promising a cure for Argentina’s extensive economic and social problems. For decades, new leaders on both left and right of the political spectrum have come to power with a radical reform programme breaking with the past. None of them have had more than temporary success in taking the country out of the malaise that has characterised most of its modern history. Will the libertarian populist Milei break the mould? Probably not. He might even change his mind and decide to join the expanded BRICS!
John Dobson is a former British diplomat, who also worked in UK Prime Minister John Major’s office between 1995 and 1998. He is currently Visiting Fellow at the University of Plymouth.