Javier Milei’s Argentina: Assessing The Prospects For Expats

Frederic Bastiat, a notable economist jus-naturalist who followed libertarian principles even before the movement had that name, once described the government as "the great fiction through which everybody endeavours to live at the expense of everybody else. Everyone is, more or less, profiting from the labour of others. No one would dare to express such a sentiment; he even hides it from himself.”

These words of wisdom remind me of the critics of Javier Milei, the libertarian economist whose advocacy of laissez-faire economics, paired with his dramatic style in television debates, catapulted him to the Argentinian Presidency last year. His surprising victory sparked global debate and excitement among libertarian circles as he promised to combat Argentina's inflation with sharp anti-statist measures, including liberalizing the exchange rate and foreign trade, abolishing the Central Bank, and establishing a minimal state.

Today, outside of libertarians, many mainstream political actors are hoping Milei fails. If he succeeds, they will have to face the truth that they are living at the expense of others. So, the collapse of the myth of statism will be a more significant achievement than Argentina's return to prosperity.

However, Milei still faces great challenges before he delivers on his promise. He must tackle Argentina's economic problems, grow his voter base, and balance foreign policy with financial support from international institutions. Milei seems to be making progress in all three areas. However, it is important to remember that Milei, though a libertarian, will continue to be pragmatic on many issues.

To understand what to expect from Milei, we must look at his achievements and challenges. But first, let's review the situation in Argentina before Milei.

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Argentina, once one of the wealthiest countries in the world in the 19th century, became a country where saving was penalized, international trade was prohibited, and cronies accumulated wealth through political favours. (Colorized Buenos Aires, Argentina. Circa 1920)

ARGENTINA'S ECONOMIC STRUGGLES: FROM PROTECTIONISM TO INFLATION 

In Argentina, governments have ruined the country not through militarism but through progressive politics and bureaucracy. From the mid-1940s, economic nationalism has become the main policy. This mercantilist ideology, emphasizing self-sufficiency, led to a command economy.

By isolating itself as much as possible from the global division of labour and specialization, Argentina reduced its economic efficiency and minimized market competition. Taxes and public resources were used to prop up state-owned enterprises and cronies, while the rapidly impoverished population was offered social programs and public jobs that often had no function.

Predictably, Argentina's broad import restrictions and quotas were the fastest ways to impoverish its population. However, protectionists have also levied heavy taxes on exports, particularly on agricultural products. In fact, despite the fertile Argentine soil that could feed a population of 400 million people, exports of agricultural products were severely restricted to avoid starvation.

Like all governments hostile to free trade and entrepreneurship, Argentine governments have begun to circulate money without limits and create inflation at will.  One of the worst examples of this inflationary pressure has occurred in recent years. Argentina's money supply increased nearly tenfold in about four years, reaching 22 trillion pesos in September 2023. Politicians screaming for economic independence have no vision other than to feed cronies and finance economic inefficiencies with public handouts to win elections.

Foreign exchange and capital controls were another "magic" trick used by Argentine governments, persistently attempting to finance budget deficits in an inefficient, closed economy. Between 1991 and 2001, Argentina equated 1 peso to 1 US dollar and allowed individuals and companies to buy US dollars. The difference in real value between the currencies was passed on to the people through inflation, budget deficit, and taxes. By mid-2002, when inflation hit the Argentine people in full force, it was too late to turn back. 

People withdrew their money from banks and began exchanging pesos for dollars at the speed of light in backstreet black markets. I still remember the surprise when I was handed a bag of pesos in exchange for 300 dollars in a dark alley. Currency restrictions drove people away from formal financial institutions; savings could not be invested, and people naturally chose to either spend every peso they had as soon as possible or exchange it for more stable assets (foreign currency, gold, etc.).

Argentina has been a country where saving was penalized, international trade was forbidden, and cronies amassed wealth through political connections. Critics of the command economy were accused of being spies and neo-liberals.

Javier Milei won the presidency amid rising discontent. However, his job is tough. He must tackle economic problems, interest groups, and a powerful state status quo. What has Milei done in six months, and what does the future hold?

Milei resolutely reduced the number of ministries from 19 to 9. The ambitious Chainsaw Plan quickly transformed a budget deficit of 5% of GDP into an impressive surplus

MAKING THE MARKET ECONOMY WORK AGAIN

When Milei took office, inflation had soared to around 160%, highlighting the severe economic crisis beneath the surface. Tackling inflation required halting the printing of new money, liberalizing the exchange rate, closing the budget deficit, drastically cutting government spending, finding foreign finance, and attracting foreign direct investment. Achieving these ambitious goals necessitated significant deregulation, privatization, labour market liberalization, and a substantial reduction in public transfers. To this end, Milei outlined three main policies: immediately cutting government spending by reducing the number of ministries, facilitating deregulation through an emergency decree, and implementing long-term economic reforms via an omnibus law. His first attempt to gain powers for massive privatization and deregulation of industries was initially opposed by labour unions and courts. However, his omnibus law is expected to pass through the Senate soon.

Milei’s most notable policy was reducing 18 ministries to 9, known as the Chainsaw Plan. Executive reform and austerity measures quickly turned the budget deficit from 5% of GDP into a surplus. The Ministry of Human Capital combined Education, Culture, Labor, and Social Development, while the Ministry of Women, Genders, and Diversity was shut down. The Ministry of Infrastructure combined transportation, energy, mining, and telecommunications.

Relying on his presidential powers, Milei quickly and drastically eliminated federal transfers and subsidies to provincial governments. He demanded that provinces finance themselves with their own tax revenues and make their own budget cuts. He also cut central government transfers to Milei community kitchen and public transportation services, despite massive protests and the risk of lowering his approval ratings. It terminated thousands of public jobs and suspended many new public service tenders.

Another key economic reform by Milei was abolishing rent controls. Unlike politicians who treat private property as a mandatory source of social policy funding, Milei's move to liberalize rental contracts boosted the availability of rental homes and lowered rents despite rising inflation. This shift left protectionist Peronists, who favoured measures like forced rentals or taxes on vacant properties, deeply disappointed.

As a result of these budget constraints, Argentina's inflation rate fell below double digits in April for the first time in a long time, to 8.8%. This rate was 25.5% when Milei came to power. And for the first time in 16 years, the government budget posted a trimestral surplus. However, annual inflation in Argentina is still around 278%. There are two important reasons for this. First, Milei liberalized the dollar exchange rate, allowing the Paso to devalue by half. Secondly, the inflationary pressure from the currency circulated before his term is still there.

Milei is just starting, and success requires privatization, abolishing capital restrictions, and attracting foreign investment. While he balanced the Central Bank’s sheets and moved toward exchange rate liberalization, reopening the country to international markets and foreign investment is a significant challenge. His long-term plan includes dollarization and abolishing the Central Bank to prevent future governments from causing inflation.

Milei's foreign policy alignment with NATO and traditional Western states seems unsurprising and pragmatic in this context. However, a closer examination of the issue is important for expats who want to consider Argentina their second home.

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If Milei manages to implement the economic reform he seeks, he will become an example of success that cannot be ignored, both in South America and in the Western world

A WAKE-UP CALL TO THE WESTERN WORLD

Milei's speech at the Davos Summit of the World Economic Forum on February 17, 2024, was a sensational success. He warned the Western world that surrendering to a new kind of socialism hindered individual freedom and civilization. Milei shocked his audience with these words:

“Today, states don’t need to directly control the means of production to control every aspect of the lives of individuals. With tools such as printing money, debt, subsidies, controlling the interest rate, price controls, and regulations to correct so-called market failures, they can control the lives and fates of millions of individuals. This is how we come to the point where, by using different names or guises, a good deal of the generally accepted ideologies in most Western countries are collectivist variants, whether they proclaim to be openly communist, fascist, socialist, social democrats, national socialists, Christian democrats, neo-Keynesians, progressives, populists, nationalists, or globalists. Ultimately, there are no major differences. They all say that the state should steer all aspects of the lives of individuals. They all defend a model contrary to the one that led humanity to the most spectacular progress in its history.”

His speech shows why Milei is a special politician. If Milei can build a successful coalition in Congress and achieve the broad economic reform he seeks, he will set an example that cannot be ignored, not only in South America but also in the Western world. As old Europe gobbles up the riches of the past like an inheritance, its social fabrics and economies continue to erode. The US government, saddled with nearly $35 trillion in debt, seems to have reached the end of the arbitrariness of the unipolar world. As the middle class loses its traditional role, Americans are gripped by an anxious perspective of a future in which the riches of the past are left behind.

But what if Milei succeeds in implementing what he has in mind? This is the deep fear in the hearts of those who portray Milei as a charlatan! When Milei shows that the king is naked, it will not be as easy as before to distract people oppressed by protectionism and command economy. The Western world will be forced to remember that they owe their wealth and political stability not to progressive ideologies but to individual freedom and free markets.

Undoubtedly, Milei's possible success would rewrite the story of South America and, in the long run, lead to the toppling of disgraceful command economies like Venezuela one by one. Moreover, Milei's shift in Argentina's foreign policy away from the BRICS countries could pave the way for a geopolitical shift in South America.

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Although I do not support either BRICS or NATO, free trade and peace are essential for Argentina to end its isolation and access global markets. Milei's alignment with NATO and the USA could reshape the geopolitical balance in South America

IS ARGENTINA CHOOSING SIDES?

Before Milei, Argentina established close relations with BRICS and was on track to join in 2023 if he had not intervened. The BRICS (Acronym for Brazil, Russia, India, China, and South Africa) is generally positioned as an independent economic and political bloc in opposition to the North Atlantic Treaty Organization (NATO) and the U.S. They are, therefore, opposed to the USD as a reserve currency and to the current U.S.-dominated global relations. BRICS has also invited Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE) to become members beginning January 1, 2024. However, Saudi Arabia has delayed its membership.  

Instead of making strategic moves between the two blocs in this sharp divide, Milei has clearly sided with NATO and applied for NATO's global partner status in April 2024. The U.S. opened a $40 million loan, allowing Argentina to buy 24 F-16 fighter jets. Not to mention its technical assistance to the Argentine military.

I have no intention of defending BRICS or NATO in the slightest. Free trade and peace are the best foreign policies in any country. However, BRICS is not a viable alternative if Argentina is to break decades of isolation and access global markets and foreign investment.

However, a country as large as Argentina with high economic potential will change the geopolitical balance in South America by openly positioning itself on the side of NATO and the U.S. Of course, for expats like us, the question is to what extent we can preserve our freedom and wealth from tax burdens and capital restrictions. If it can defeat the status quo, Milei's success could be decisive.

I have closely followed global politics for many years, helping expats safeguard their wealth and freedom from arbitrary policies. It is still early, but Argentina, under Milei's leadership, might once again become an attractive place

CONCLUSION: WILL ARGENTINA BE AN OPPORTUNITY FOR EXPATS IN THE POST-PERONIST ERA?

Milei has a real chance of success unless he is assassinated or Argentina's political elites form a bigoted opposition against Milei at the expense of dragging their country into a further crisis. As I have noted, the national, regional, and global impact of Milei's success could be far beyond what is imagined.

The journey of this unlikely hero could potentially also open up significant opportunities for expats. Argentina, with its natural resources and human capital, is poised for development and economic growth. The only things missing are freedom and political stability.

I have followed geopolitics and global politics closely for many years, helping expats save their freedom and wealth from politicians' arbitrary policies. Will Argentina be one of the expat destinations on my list? It's too early to say anything yet. Milei’s journey has just begun, so it’s too early for high hopes. However, I urge you to take action for yourself and your family today without pinning your hopes on politicians. The world is changing, and not always for the good. Now is the best time to craft your Plan-B.