Comprehending Milei, a libertarian experiment for a moribund Argentinian economy
04/07/2024
After winning Argentina’s presidential election as a political outsider, Javier Milei seeks to shake up the Argentinean status quo. That will depend on whether he is successful in reviving a moribund Argentinian economy. To achieve this, he needs to sync his reform agenda with key policy actors: governors, legislative, judicial, and civil society. Alternatively, he could mimic Bukele and opt for reform through robust executive action. This would be the path of most resistance, as it would threaten the Argentineans’ profound attachment to democracy.
Milei’s administration is historic in Latin America, a region keen on populist and paternalistic notions of the State, at least in theory. Argentina’s President envisages a world in which individuals voluntarily trade with one another according to the norms of a free market, which explains his view on interacting with China. As he stated to the Wall Street Journal, there will be no strategic partnership with China or any “communist” regime. Yet, that shouldn’t prevent Argentina’s business sector from engaging in trade with their Chinese counterparts.
Similarly, in internal matters, Milei hopes to reduce government taxes to a bare minimum, and instead puts forward a model in which private companies provide individuals with goods and services in exchange for payment. In line with this, his Minister of Foreign Affairs, economist Diana Mondino, stated that the culmination of the Nestor Kirchner pipeline, crucial for Argentina’s energy security, should be funded by big oil companies instead of the Argentinian population. Words were followed by action: Milei has already cut off funds for public works.
Regardless of these anecdotal examples, it is precocious to assess the feasibility of an “anarcho-capitalist” Argentina. The baseline is a moribund and ultra-regulated economy.After a decade of economic stagnation, its fiscal deficit is a shocking 15% of GDP. Similarly, its annual inflation is 211.4%. These figures speak of the colossal challenge Milei has ahead in implementing his ambitious reforms. These figures also explain the utter exhaustion of Argentinians and their unconventional decision to elect an outsider as their president: Milei has no previous experience in office, his political party holds only 13% of the seats in Congress, and none of the 24 provincial governors come from his party. Though he proved to be an avid politician during the campaign trail, now that he is in power, he must prove to be the avid manager needed to revive Argentina’s economy.
Ignoring all electoral strategists, Milei won by warning his constituents that there is no money and that things will be tough for some time, effectively setting up low expectations for upcoming hardships. Most Argentinians seem aware of this and are willing to endure what is to come. They do, however, need certainties, and Milei needs quick wins–for example that his aggressive fiscal and monetary adjustment policy starts curbing inflation. As soon as he took office last December, Milei devaluated the Argentine currency by 50% and started an aggressive reduction in spending. Contributory pensions, the single biggest budget item, fell almost 40% in real terms compared with the first two months of last year. While this aggressive monetary and fiscal policy hits Argentinians’ pockets, there are some signals of hope: inflation is going down. Milei has markets and citizens believing. His rating approvals are steady at 50%. Yet, his agenda finds resistance in Argentine institutions: Congress, Governors, and Courts.
In February, Congress rejected his key bill, “Bases and starting points for the freedom of Argentinians”, which aimed to promote privatizations, foster FDI and pursue a crackdown on crime. An important setback, the failed negotiations for this bill’s approval, can be explained both by Milei’s inexperienced and minority political force as well as the profound change the political landscape is going through after Milei’s victory.
Over the last twenty years, the country’s politics were organized under two major blocs: Peronists and non-Peronists. The former, led by the Kirchners, were in power for 16 years; the latter, led by erstwhile President Macri, was a pro-market one-term presidency. Argentina’s political establishment failures prompted people’s weariness and paved the way for the victory of a third party led by an unconventional, eccentric outsider.
Now, both parties need to adapt to the new reality of Milei’s Argentina. Non-Peronists must find a balance between exerting control over the administration while attending to the changing demands from their constituencies who widely support Milei’s reforms. Thus, some of their members suggest joining Milei’s administration while others suggest playing a clear role of opposition. On the other hand, Peronists have made it clear that they will reject any sort of economic reform. Yet their lack of clear leadership forces them to take a defensive position. Regardless of their goals, both Peronist and non-Peronist factions exert their weight in Congress and use their best ally: time. They both speculate that the inevitable worsening of the economic situation will weaken Milei’s position and help them achieve their goals.
Milei’s libertarianism also clashes with a key element of Argentina’s political system: the Governors. Without any Governor in his party, Milei faces conflicts with non-Peronist and Peronist Governors on fiscal resources, which are crucial for the success of his aggressive orthodox fiscal policy. The greatest clash was with Governor Torres, from the Patagonian province of Chubut, an important oil producer, key to the country’s energy security. The 35-year-old Governor spoke out against Milei’s policies and demanded federal funds to keep running his government. The conflict escalated quickly, with threats of cutting oil production by Torres and Milei attacking the Governor. Finally, Governor Torres took the conflict to a federal court, which favored him. Torres has recently been elected as the President of the recently formed “Patagonia Treaty”, which gathers the six provinces of this region.
The Governors of the northern region of the country are organized under the “Regional Council of the North” from where they define their mining exploitation strategy and promote FDI. This club includes provinces located in the “Lithium Triangle.” Milei faces Governors of provinces that possess energetic resources like shale oil and gas and critical minerals for the global energy transition. After this conflict, the Governors inflicted another important defeat on Milei. The Senate rejected his Executive Order “Bases for the Reconstruction of the Argentine Economy,” the other key legal instrument for Milei. Senators replied to the Governors’ call to reject the legal instrument.
In court, Milei’s policies are now being challenged, and some have already been overturned. The labor reform case was the most significant. As every court has a say in the constitutionality of regulations, judicial activism will continue to increase. Industries like energy and minerals may be especially vulnerable to judicial intervention based on environmental and human rights concerns, along with certain anti-market views. Final decisions will rest with the Supreme Court.
Nevertheless, Milei has several tools to face the Judiciary. One is the appointment of new Supreme Court justices to fill two vacant seats. In fact, he recently suggested two names: Manuel Garcia Mansilla, a conservative constitutionalist lawyer who shares rejection of legalizing abortion with Milei; and Ariel Lijo, an experienced criminal law Judge who is known for his lack of progress in trials on corruption of Cristina Fernandez de Kirchner. This would require the Senate’s approval, which will require a delicate albeit doable political dance. Keenly aware of the risks of obstruction by a popular administration, the Supreme Court has not yet taken on any case that involves the Milei administration. Just like many members of Congress, the Supreme Court understands that time is an ally and means to remain a spectator in this process.
After these two important defeats in Congress and the setbacks in the Courts, Milei has demonstrated that he is learning to play the game. After almost five months in office, he has just obtained his first victory in Congress. The Chamber of Deputies approved the President’s package of state, economic, and tax reforms dubbed the “Bases Law”, a key bill that gives his administration tools to maintain the budget surplus recorded during the first quarter of the year, a key-element in his fight against inflation.
This new pared-down version of the “Bases and starting points for the freedom of Argentinians” bill, replacing the overstuffed edition that failed in Congress two months ago, includes restructuring State agencies, changes in labor laws, privatization of public companies, modifying the tax code –mainly with the reversal of Income Tax and significant reductions in Personal Assets tax–, implementing extensive normalization of non-regularized capital and a new tax moratorium. In addition, it launches an ambitious large investment incentive program.
Eyes are now on the Senate for two reasons: the “Bases Law” and Milei’s pending nominees for two seats in the Supreme Court. During his first State of the Union address, President Milei, summoned the country’s provinces to sign a ten-point agreement on May 25, establishing “the principles of the new Argentine economic order”, known as the May Pact. Milei’s desire is to subject this agreement to the prior approval of the “Bases Law”. A challenging quest for a weak force that has already suffered a big defeat in the Senate with the rejection of the December executive decree.
Weak in Congress and with no Governors on his side, Milei’s power relies on his popularity. For structural reforms to happen, he will need landslide victories in the 2025 midterm elections. In the meantime, if he seeks to enforce his agenda by stretching the boundaries of the constitutional procedures, he will face resistance from the Argentinians, a people strongly attached to their democracy. The latest Latinobarometro poll shows that Argentinians are among those who most reject the idea of having a non-democratic government solving their problems: 62%, while the Latin-American mean is 46%.
While it is too soon to speak of a Milei “model,” it is perhaps reasonable to speak of a Milei “effect”, and whether his libertarian dream is to be an inspiration for other countries in Latin America. Currently, the region is experiencing a period of profound political change characterized by the opening of new opportunities, but also problems carried over from the 20th century, like mediocre economic growth, structural poverty, inequality, informality, violence, and corruption. Ineffective government response to these challenges undermines leaders and makes governance complex.
This is the context for the rise of a potential anarcho-capitalist wave, which is beginning to gain traction following Milei’s victory. A network of libertarian institutions across Latin America supports this movement, including the Francisco Marroquín University in Guatemala, the Eléutera Foundation in Honduras, Cedice in Venezuela, and the Centro Ricardo Salinas Pliego in Mexico. There are currently over thirty libertarian think tanks in Brazil, a significant leap compared to the three that existed ten years ago. The faces of this movement are young local freedom advocates from countries like Bolivia, Chile, Colombia, Venezuela, and Peru who use social media as their primary platform. After going through an activist phase, the movement has achieved a significant political win in Argentina. Now, they seek to reach the next level: the region’s public policies. And Milei’s presidency holds the key to that.
Anarcho-capitalism has at least one previous but failed experience in Latin America. Honduras’ Zones for Employment and Economic Development (Zonas de Empleo y Desarollo Económico, or ZEDEs) were semi-autonomous zones within which investors would oversee fiscal, security and conflict resolution policies. The ZEDE law, which was approved in 2013, was forcefully pushed to attract foreign investment and jobs in Honduras, where over 60% of the population lives in poverty, under the administration of former President Juan Orlando Hernandez, which ran from 2014 to 2022. In 2022, the Honduran National Congress authorized the complete elimination of ZEDEs throughout the nation. In fact, President Xiomara Castro, a leftist, thanked Congress President Luis Redondo on Twitter for “defeating those who tried to steal our sovereignty” after the vote, making a clear allusion to the outgoing president. Although implemented, ZEDEs prove that sustaining anarcho-capitalism is challenging as it faces well-organized and entrenched movements that manage Latin American public policy agenda.
Libertarians can learn from Bukele’s experience, as both political phenomena come from Latin-Americans’ dissatisfaction with current governments. Bukele’s crackdown on crime produced a shift in political preferences in Latin America, where the center of the ideological spectrum has tilted to the right. The Bukele effect was so strong in the last Argentine elections that even Milei and his staunch opponent, Peronist Sergio Massa, had similar security policy proposals. However, the recent rejection of Milei’s demand for a tougher stand on crime by the Argentine Congress shows that the Bukele effect vanishes when it enters the domain of established Latin America’s public policy institutions. It is difficult to enact reforms in systems with a strong dispersion of powers. Policymaking goes beyond the executive force of the President, and Governors, Congress, the Courts, and Central Banks have a strong say in the political process. When these institutions clash with the Presidency’s policies, they can prevent their execution. In political systems with weaker institutional counterbalances, like that headed by Bukele, a centralized authority has much more capacity for action. But that’s not the reality Milei faces.
Nonetheless, notable advancements have been made in the public discourse by anarcho-capitalists in Latin America. Indeed, they continue to dominate social media and take up space in mainstream media. But they are still far from effectively introducing their ideas in the public policy agenda where there is no magic bullet. They will need to keep on winning elections, gaining seats in Congress, bargaining, and navigating the status-quo. The Bukele route is the alternative.
Milei is faced with this decision. While the context and his political power hinder him in a heavy-handed way, the big question is whether his anarcho-capitalist experiment will find its way through Argentina’s liberal democratic institutions and, if so, how. Will his orthodox economic policies allow him to maintain popularity, and therefore win seats in the 2025 midterm elections, moving his agenda forward in Congress? Bargaining and syncing his reform agenda with key policy actors seem out of the script. So far, the Milei method is about all or nothing. Meanwhile, the anarcho-capitalist movement continues to function, awaiting its triumph to unleash a libertarian wave in Latin America.
Juan Ignacio Carranza is a Fellow Expert at Agora Strategy, a geopolitical consultancy firm. He holds a JD from University of Buenos Aires, an international public policy MSc from University College London (UCL), and a Masters in Public Administration from Harvard Kennedy School.
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