Posted November 20, 2023
By Matt Insley
Battling 142% Inflation Will Take a ‘Milei Miracle’
The last time we substantially featured Argentina was in pre-pandemic 2019. Even then, the South American country was besieged by a host of headwinds.
As Axios noted: “Argentina looks like it's headed, once again, for the misery of economic chaos and sovereign default.”
Apropos, here’s a few unnerving 2019 stats:
- Inflation at 55%
- Unemployment at 9.1%
- GDP at -6.2% year-over-year
Plus, in a wrongheaded effort to slow inflation, Argentina’s central bank raised interest rates as high as 65%. Not to mention, Argentina bond yields were preposterously high: we’re talking 10.6%.
One reason for prevailing “economic chaos” was a contentious 2019 election, including candidate Cristina Fernández de Kirchner. CFK, as she’s known, was Argentina’s president from 2007-2015.
In 2019, despite being embroiled in a long-running corruption scandal — accused of pocketing bribes in return for government contracts — CFK became Argentina’s vice president under President Alberto Fernández.
It’s against this backdrop — with current inflation at a staggering 142% — that preliminary election results show Javier Milei won Argentina’s presidential election over the weekend.
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Your Rundown for Monday, November 20, 2023...
“There’s no good reason for Argentina to suffer from 142% inflation,” says Paradigm editor Sean Ring at Rude Awakening. “It’s a rich and beautiful place with much to offer.
“Will Milei make good on his promises? Will the Argentines revert to voting for incompetent Peronists in the next election? Only time will answer those questions.
“But for now,” says Sean, “here’s why I’m excited for Argentina…
“Economic Liberalization: Milei advocates free-market policies, including minimal government intervention in the economy. This includes reducing taxes, deregulation, and encouraging entrepreneurship. Straightaway, this should give the Argentine economy a shot in the arm. After all, if taxes and regulations are meant to reduce smoking, what do you think they do to entrepreneurship and income?
“Personal Freedoms: People value individual liberties and work better when their government doesn’t harass them. Milei's stance on personal freedoms, like freedom of speech and expression, aligns with this principle.
“Opposition to Authoritarianism: Milei has criticized authoritarian tendencies in government and advocates limiting the state's power. This is a danger when dealing with China, as I’ll elaborate on below.
“Reduction of Government Size: Milei's proposals to reduce the size and scope of government, including cutting public spending, are core goals to get back to small government.
“Monetary Policy: His focus on sound monetary policy, including criticism of inflationary practices, aligns with the goal of a stable, non-inflationary currency.
“Milei wants to dollarize Argentina’s economy,” Sean says. “I’m not a big fan of the idea. But [as] a first move in recovery, this may make sense. If he removes the volatility of the Argentine peso from the buying decision, Argentina’s exports will increase, which is a must to get Argentina’s economy back on its feet.
“In summary, Javier Milei's election and policies align with principles I wholeheartedly support, particularly around economic freedoms and reducing government intervention,” Sean concludes.
“However, the practical challenges of implementing these policies in Argentina's complex socio-economic environment present notable obstacles.
“Milei’s rhetoric got him into the presidency. His management skills will keep him there… or not.”
Market Rundown for Monday, Nov. 20, 2023
The S&P 500 is up 0.20% to 4,520.
Oil is up 1.80% to $77.20 for a barrel of WTI.
Gold is down 0.60% to $1,968.60 per ounce, according to Kitco.
And Bitcoin up about 1% to $37,260.
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