Milei’s anarcho-capitalist dream collides with Argentine reality

It’s six months since soi-disant anarcho-capitalist Javier Milei roared to victory in Argentina’s presidential election on a platform of taking a chainsaw to the Argentine state, ditching the peso for the US dollar and turning away from a China run by “assassins” and a Brazil run by the “corrupt” and “communist” Lula.

Anyone voting for Milei for pure slapstick entertainment can’t really complain about getting their money’s worth. Apparently failing to have heard of his big fan Liz Truss is indisputably the comedic high-water mark of his presidency so far. But even before causing a diplomatic incident last weekend by accusing the wife of Spanish prime minister Pedro Sánchez of corruption, Milei had bear-hugged Donald Trump at the conservative US CPAC conference and promised to make Argentina great again, and treated attendees at Davos to half an hour of rambling adolescent libertarianism.

In practice, however, and particularly internationally, Milei has moved with deliberation and largely avoided breaking things unnecessarily. So far, his presidency tells us more about the limited room afforded by global economic reality and Argentina’s deep-seated political and economic dysfunction than it does about his anarcho-capitalist tendencies.

Milei inherited an economic shambles even by Argentina’s world-beating standards: soaring inflation, an incontinent fiscal policy being funded by the central bank, and an underlying economy bearing the marks of more than half a century of protectionism and cronyism. (He has the right instincts about that, to be sure.)

On macro policy Milei has certainly moved in the right direction — it would actually have been quite hard to make Argentine fiscal and monetary policy worse than it was — by devaluing the peso, implementing a fiscal tightening and cleaning up the central bank’s balance sheet.

Impressively, Argentina has run its first quarterly primary fiscal surplus in 16 years, but to some extent this reflected one-off factors, including what’s known in Argentina as the “blender” (licuadora) — high inflation inducing fiscal tightening by reducing real spending. Ads from a jocular marketing campaign by the electronics company Philco for a combined chainsaw-blender deal were approvingly copied round last month by Milei’s advisers.

Meanwhile, Argentina’s dysfunctional politics continues to assert itself. Having largely relied on pushing through spending cuts by presidential decree, Milei managed to get the lower house of Congress to support a fiscal tightening package. But it faces opposition in the Senate, and he has not yet succeeded in a plan to create political momentum by getting the perennially problematic provincial governors to sign up to his plans. Congress also spiked his deregulatory chainsaw, declining to support a sweeping liberalisation plan which he subsequently withdrew.

In the meantime, the rest of the revolution has proceeded slowly. Milei is still struggling with the peso, which, when he came to power, had multiple closely managed exchange rates backed by capital controls. The Argentine currency did devalue but remains on a crawling peg system, and capital controls for the moment stay in place. The IMF is pretty keen on Milei and is continuing to disburse money from an existing lending programme, but is unlikely to want to extend its exposure with fresh lending until it can see a route through to some kind of monetary policy normality.

Internationally, ignoring the spasms of abusive rhetoric performatively directed towards abstract or soft targets (and he’s hardly alone in Latin America in that right now), Milei’s policies have been positively mainstream.

It’s far safer to insult the Spanish prime minister’s wife than to take on Xi Jinping, or indeed Luiz Inácio Lula da Silva. Recognising the reality of running a commodity-exporting economy dependent on sales to China, Milei has declined to go into a full-on political and trade conflict with Beijing, taking an entirely reasonable position that companies in the private sector can trade with whoever they want. Last month he also suggested a meeting to his Brazilian counterpart, the second attempt at a rapprochement after Lula turned down the invitation to Milei’s presidential inauguration in December.

At the beginning of his presidency, Milei dropped his plan to withdraw from Mercosur, instead meekly backing ratification of the trade agreement between the four-member bloc and the EU originally signed in 2019. Lula himself also appears to have swallowed his objections to the deal. Ratification now depends on overcoming reservations in the EU, particularly in France. It’s testament to the problems of EU trade policy that it’s Paris, not Brasília or Buenos Aires, holding up trade liberalisation.

Ignore the noisy special effects, and you see that Milei’s presidency on the economic and trade front has shown a politician generally moving in the right direction while recognising limited room for manoeuvre. Indeed, it’s testament to the general chaos of Argentine governance that even someone as personally eccentric as Milei is far from being the maddest thing about it.

alan.beattie@ft.com