People in Argentina are ready to take a chainsaw to their economy. On Dec. 10, President-elect Javier Milei will take office after his resounding electoral victory against the status quo candidate. Milei, a shaggy-haired, rockstar-esque, eccentric economist, fashions himself an anarcho-capitalist.
People call him Argentina’s Trump, but former President Donald Trump never destroyed the U.S. Central Bank. Milei has said he wants to blow up the country’s central bank, but that’s not all. He’s vowed to shutter entire government agencies and trash the Argentine peso, with hopes of making the U.S. dollar the national currency.
“This is not a task for the lukewarm, not a task for the cowardly, and much less for the corrupt,” Milei said in his victory speech.
After years of calling those in Congress corrupt, Milei doesn’t have a ton of friends there, which will make it hard to pass his more extreme policies.
As the character portraying President Harry Truman said in the 1975 play, “Give ‘Em Hell, Harry,” “you want a friend in this life, get a dog.”
It’s advice Milei takes to heart. He cloned his beloved former dog, Conan, producing five genetic matches. He says the English mastiffs are his children and his political advisers.
“With me, the decline ends and we regain power. Long live freedom, damn it,” Milei said, using his catchphrase.
So why did Argentina’s voters overwhelmingly elect a man who is promising to blow up the economy? Argentina’s economy has been a disaster for decades.
“Did Argentina ever have a single crisis that put it down, you know, produce a great depression or lead everybody to leave the country? No, it’s been a series of many crises through the years,” economist Laurence Kotlikoff said.
Decades of disaster
A century ago, Argentina was one of the wealthiest countries in the world. It was rich in natural resources with fertile land. Economically, it was on parity with the United States.
“Argentina, in 1920, had 85% of our per capita GDP, they were almost as rich as we are,” Kotlikoff said. “Today, they have 14%. It’s all due to running these policies over a century. So this is a slow train wreck.”
It’s a train wreck many economists say started under Juan Domingo Perón, a three-time populist president first elected in 1946 who ruled on socialism with a side of fascism.
Perón drastically expanded social welfare programs, nationalized industries, monopolized foreign trade and pushed wages higher. As a result, growth in Argentina paled in comparison with countries it once competed with. The peso lost value and inflation took hold.
Though Perón was eventually overthrown in a military coup, “Peronism” persisted. Perón was even brought back from exile for a third term. And Peronist candidates have largely dominated the political landscape.
Milei’s opponent, Sergio Massa, was the Peronist candidate in the presidential race and minister of the economy. This time, voters resoundingly rejected those ideals.
The real inflation nation
Try shopping within a budget in Argentina where prices literally change by the day.
Inflation in the U.S. has dominated money conversations since the uptick began in 2021. While the U.S. peaked at around 9% this cycle, people in Argentina are looking at 143% in annual inflation in October, with the central bank predicting 185% by the end of the year. It’s among the highest inflation rates in the world.
Despite generous government subsidies, 40% of the population lives in poverty. Meanwhile, the value of Argentina’s currency continues to plunge.
Five years ago, 37 Argentine pesos could buy one U.S. dollar. Today, it takes more than 360 pesos to make the same exchange.
With no faith in their own currency, people in Argentina literally stash U.S. dollars under the mattress for safekeeping, knowing any pesos they hold will rapidly lose value. Many turn to the black market to buy elusive dollars, which in October went for nearly three times the listed exchange rate.
This is a country that boasts the second-largest economy in South America, behind Brazil. The World Bank sees it as a nation with significant opportunities. But the country has been out of balance for decades.
Argentina has defaulted on its debt nine times. The last three have happened since the year 2000. Who would lend money to a nation that can’t pay its debts? Argentina is by far the biggest debtor to the International Monetary Fund, with about $44 billion in outstanding debt.
“Countries like Argentina and Venezuela and a whole host of other countries, for in many cases very understandable reasons, take on debt that is denominated in currencies that are not their own,” economist Stephanie Kelton explained. “So they get loaded up with debt, they get IMF loans and the rest of it.
“Some countries just don’t have much of a choice. They don’t have domestic energy resources, they don’t have access to food and medicine and technologies, they’ve got to import these things.
“And to get those real resources they often have to acquire so-called hard currencies, they need the U.S. dollar or the euro or the pound. So they get indebted in currencies that they can’t issue.
“Then it’s no surprise when a country like Argentina that can do very well for a period of time because it’s a big exporter of things like soybeans, if soybean prices are very high and rising, well all of a sudden Argentina is doing very well.
“And then when commodity markets take a tumble and prices come crashing down, all of a sudden, you’re not earning the foreign exchange that you need to service debt that you’ve taken out in other people’s currencies. So you can get a debt crisis in a country like that.”
This year, with the drought, Argentina’s economy is expected to contract by 2.5%.
The world’s cautionary tale
“We’re kind of Argentina in the making,” Kotlikoff said.
Argentina serves as a cautionary tale for other economies; a scary story told to say, “Don’t follow this path or you too might end up here.” As total U.S. debt flirts with $34 trillion, American economists are quick to compare the fundamentals.
“We’ve increased it so much that for example, our debt relative to our national income, to our GDP, is about 40% higher than it is in Argentina, a country that everybody knows is potentially in trouble,” said economist Kevin Hassett, a former senior adviser to Trump.
Will U.S. spending spiral the country to Argentina’s depths? Kelton said there’s one clear difference between Argentina and the U.S. or even Japan, which holds twice as much debt as the U.S. when compared to the size of their economies.
“Japan, the U.S., the UK, Australia, Canada, these governments are currency issuers,” Kelton said. “They’re not going to run out of their own currency. They never have to borrow it from anyone in order to be able to spend.”
One of Milei’s chief pledges, dollarizing Argentina’s economy, would mean letting another country drive its currency destiny. But doing so would eliminate a lifeline that has for decades fueled Argentina’s inflation: Printing pesos to cover the country’s overspending.
The U.S. has no control over whether a country adopts the dollar, and experts doubt Argentina could come up with enough dollars to transition. But the U.S. Treasury has warned countries in the past that dollarizing is not a substitute for sound fiscal policy.
