Milei’s Victory: The Impact on Argentina & Democratic Stability

The victory of the hard-right Javier Milei in yesterday’s election spells disaster for the Argentinian economy and South American stability more broadly.  

Since Javier Bolsonaro was removed by the Brazilian electorate in October 2022, regional diplomacy has flourished with Brazil and Venezuela renewing ties, and doing so in concert with Alberto Fernandez, Argentina’s outgoing center-left President.  

But now South America must brace itself for the inauguration of a new far-right strongman, this time peddling fanciful economic policies such as dollarisation, in addition to the usual sexist and xenophobic conspiracy theories.  

If Milei is true to his word, and we must hope he is not, then the incoming government will embark on punishing spending cuts, the closure of Argentina’s central bank, and the subsequent junking of the peso for the US dollar.  

Investors are expected to ditch the peso when markets reopen in Argentina tomorrow, fully aware that the currency is a) overvalued already and b) soon to be defenceless once Milei shutters the central bank.  

A devalued peso, instead of stemming inflation as Milei has promised, will in fact cause a surge in prices as exports become more expensive for Argentinian consumers.   

And yet the worst will be yet to come if his government can amass enough dollars - likely through privatisations at bargain basement valuations and defaulting on obligations to key international creditors like China - to proceed with even a partial dollarisation.  

Inflation would slow under dollarisation, but this would be a pyrrhic victory, coming at the cost of a brutal economic contraction as businesses and consumers are deprived of vital credit.  

The longer-term prognosis is equally grim. Dollarisation is, in effect, the handing over of national economic policymaking to the US Federal Reserve – an institution that Milei derided as recently as August.   

Fellow South American nations like Venezuela know full well that that the US can quickly turn from friend to foe. Indeed, ordinary Venezuelans have faced grim hardship as their own economy has been crushed under American pressure. 

This is just another cruel irony in Milei’s victory. While Argentina doesn’t need to look far to see where sacrificing economic sovereignty gets you, in actual fact, it need only look to its own history.  

What Mileists never mention is that Argentina effectively dollarised between 1991 and 2002, burning through reserves to maintain a peso-dollar exchange rate of 1-to-1.   

This led to wild gyrations in economic growth and ultimately mass social unrest which necessitated the peg’s abandonment.  

With the peso allowed to float and find its level, Argentina’s economy came back strongly in the 2000s, growing at a yearly average of around 8% before the global financial crash of 2008. 

But now, as its workers and public services stare liquidation economics in the face, Argentina must contend with the sad reality of a return to volatility at the expense of the citizens that need stability most. 

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