Argentina’s new ‘anarcho-capitalist’ president begins to make cuts

Javier Milei won Argentina’s presidency last month by wielding a roaring chainsaw during his campaign, symbolizing the blows he planned for the country’s government.

On Tuesday, two days after taking office, the self-described “anarcho-capitalist” unveiled deep cuts and a sharp devaluation of Argentina’s currency, sending the struggling country of 46 million into a path of austerity that he said would further undermine economic would have consequences. pain.

Mr. Milei’s government said it would halt new infrastructure projects; fire recently hired government employees; reduce energy and transportation subsidies for residents; reduce payments to Argentina’s 23 provinces; and halve the number of federal ministries, from 18 to nine.

It also officially said it would devalue the Argentine peso – 1 dollar now costs 800 pesos instead of 350 – bringing the government’s exchange rate much closer to the peso’s market value. The move is likely to lead to even sharper price increases in Argentina, which is already struggling with inflation below 140 percent.

Mr. Milei and many economists have said such serious reforms are needed after years of government overspending, but they would lead to even greater hardship in a country facing one of its worst economic crises, including a collapsing currency and rising poverty rates and increasing poverty. hungry.

The package of measures “will increase inflation, lower incomes, reduce activity and employment and increase poverty,” said Martin Rapetti, an economist at the University of Buenos Aires.

“The question is: what is society’s tolerance for these measures?” he added. “It’s the people who are going to pay.”

Mr. Milei, 53, first became known to Argentinians as a conservative economist and television pundit who railed against big government and promoted a brand of libertarianism he called anarcho-capitalism, which essentially says society should be better is without a state at all.

So many Argentines were shocked last month when Mr. Milei, whose presidential campaign was once seen as an afterthought, won the election in a landslide.

His combative style and embrace of conspiracy theories have drawn comparisons to Donald J. Trump, whom he has embraced. For example, he has called climate change a socialist plot and downplayed the atrocities of Argentina’s bloody military dictatorship in the 1970s and 1980s. But many voters overlooked such far-right politics and chose Mr. Milei because of his promise of a sharp break with the failed economic policies of the past.

He focused his campaign on promises to eliminate Argentina’s central bank and replace the peso with the US dollar. But since winning the election, he has indicated that such a review would have to wait until he could stabilize the economy. This, he now warned, must be done through deep cuts.

“In the short term, the situation will worsen, but then we will see the fruits of our efforts,” he said in his inaugural address on Sunday, amid chants of “chainsaw” from his supporters. “This is the last difficult period before Argentina’s reconstruction begins,” he added.

On Tuesday, he let his new Economy Minister, Luis Caputo, spell out the difficult details in an 18-minute pre-recorded speech. “We will be worse off in the coming months than we are now, especially when it comes to inflation,” he said.

Mr. Caputo, a former Wall Street banker, argued that the drastic measures were necessary because Mr. Milei had inherited the “worst situation in history,” adding that Argentina “has always been addicted to budget deficits.”

The country has been a symbol of economic dysfunction for decades, with bouts of severe inflation, defaults, bank runs, currency fluctuations and the political instability that often followed.

These cascading problems have largely been caused by serious economic mismanagement by both left-wing and right-wing governments. The latest economic crisis has its roots in the policies of left-wing former President Cristina Fernández de Kirchner, who financed major social programs and economic subsidies in part by draining reserves and simply printing more pesos.

Argentines elected a conservative president, Mauricio Macri, in 2015 to try to reverse such spending, but his attempt at major changes failed amid mass protests from unions and the poor, who rely on state aid. Instead, the most important legacy of Macri’s presidency was taking out the largest-ever loan from the International Monetary Fund, which ultimately totaled $44 billion, and which Argentina is now struggling to repay.

The IMF on Tuesday welcomed Milei’s moves, saying they “will help stabilize the economy and lay the foundation for more sustainable and private sector-led growth.”

Alejandro Werner, a former IMF official who helped negotiate the Argentine loan, said Macri had failed by trying to sell the austerity measures as painless. Mr. Milei’s government “is not hiding anything,” said Mr. Werner, who wrote a book about Argentina’s economic struggles.

He said the reforms made economic sense but faced major political challenges. Mr. Milei is likely to cause a recession, Mr. Werner said, and that will likely turn the public and politicians against him.

In an effort to soften the blow for some, Milei’s government said that for the country’s poorest families, support payments would be doubled to $50 a month and food subsidies would be increased by 50 percent, to as much as $85 a month.

The government says the basic necessities of an average Argentine family, including food, transportation and clothing, cost $430 a month. More than 40 percent of Argentine households earn less than that, putting them below the poverty line, according to government statistics.

The government left many details vague on Tuesday, such as how many state jobs would be lost and how much energy and transportation costs would rise.

The government said it would fire officials hired in the past year. It also said it would not start any new infrastructure projects and cancel planned projects that had not yet started. Argentina employed more than 450,000 people in public infrastructure projects this year.

Subsidies have made energy and transportation very cheap for Argentinians. For example, bus and train fares in Buenos Aires are currently 9 cents. If the subsidies are abolished, the government says the bus would cost 88 cents and the train $1.38. Those rates would still be considered low in richer countries, but under the government’s new exchange rate, the average Argentine earns just $6,300 a year.