Argentine President Milei warns of unavoidable economic shock in maiden speech
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Mr Javier Milei warned that he had no alternative to a sharp, painful fiscal shock to fix the country’s worst economic crisis in decades.
PHOTO: REUTERS
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BUENOS AIRES - Argentine libertarian economist Javier Milei
“There is no alternative to a shock adjustment,” he said on the steps of Congress after taking the presidential baton and sash, with crowds of supporters cheering despite him saying the economy would worsen in the short term.
“There is no money,” he said.
Mr Milei, 53, a former TV pundit who shot to fame with expletive-ridden tirades against his rivals, China and the Pope, is taking over from Peronist leader Alberto Fernandez, whose government was dogged by failures to rein in soaring prices.
“The outgoing government has left us on track towards hyperinflation,” Mr Milei said. “We are going to do everything we can to avoid such a catastrophe.”
While the speech was light on details, he said key steps would include a fiscal adjustment equivalent to 5 per cent of the country’s gross domestic product through cuts that he said would fall on “the state and not the private sector”.
The wild-haired outsider marks a major gamble for Argentina: His shock therapy economic plan of sharp spending cuts has gone down well with investors and could stabilise the embattled economy, but it risks pushing more people into hardship, with over two-fifths already in poverty.
However, voters – who drove Mr Milei to victory in a November run-off
“He is the last hope we have left,” said 72-year-old doctor Marcelo Altamira, who slammed “useless and inept” governments for years of boom-bust economic crises, saying the outgoing Peronist government “had destroyed the country”.
Boom and bust
The challenges are huge. Argentina’s net foreign currency reserves are estimated to be US$10 billion (S$13.4 billion) in the red, annual inflation is 143 per cent and rising, a recession is around the corner and capital controls skew the exchange rate.
Argentina has gone through boom-bust cycles for decades, with money printing to fund regular deficits stoking inflation and weakening the peso.
That has worsened in recent years as reserves dwindled, with a major drought earlier in 2023 hitting soy and corn – the main cash crops.
If not tamed, inflation could reach 15,000 per cent annually, Mr Milei warned in his speech, while pledging to “fight tooth and nail” to eradicate it. He also warned about a US$100 billion debt “bomb”.
The major grains exporter needs to revamp a creaking US$44 billion loan programme with the International Monetary Fund (IMF), while Mr Milei has to navigate ties with important trade partners China and Brazil, which he criticised during the campaign.
Mr Milei takes over from the unpopular centre-left Mr Fernandez, but will need to negotiate with rivals, as his libertarian coalition has only a small bloc in Congress. He has allied with the main conservative grouping.
That has already had an impact. He has moderated his tone in the last few weeks, packed his first Cabinet with mainstream conservatives rather than ideological libertarian allies and, on Dec 10, he did not mention dollarisation in his speeches.
Later in the day, he took action to make good on one campaign promise, announcing in a post on X that he had signed a decree to slash the number of ministries by half, from 18 to nine.
The move evokes one of Mr Milei’s most memorable moments as a candidate, when a video went viral on social media showing him tearing down sticky notes with the names of ministries he aimed to close, angrily shouting in Spanish “afuera” – out with you.
Argentina will also remain part of the Paris Agreement on climate change, Mr Milei’s new climate diplomat told Reuters on Dec 10, despite his past comments that global warming is a hoax.
The moderate tilt has buoyed markets and reassured voters.
“I think he will do well. For legal and congressional reasons, he’ll end up having to focus on more coherent things,” said Ms Laura Soto, 35, a restaurant employee in Buenos Aires.
She said some more radical social ideas he had talked about during the campaign were also unlikely to happen, including easing regulation on guns and reopening the debate on abortion, which was legalised in Argentina three years ago.
‘Change is necessary’
To fix the economic mess, Mr Milei has chosen mainstream Mr Luis Caputo to helm the economy ministry, with a close Caputo ally, Mr Santiago Bausili, as the central bank chief.
Mr Milei and Mr Caputo are expected to lay out a more detailed economic plan early next week, which will focus on reducing spending and closing the fiscal deficit.
“We are going to put the country back on its feet and make Argentina great again,” Mr Milei said in a short address to supporters from the presidential palace balcony later on Dec 10, echoing former US leader Donald Trump’s slogan.
“It’s the end of the populist night and the rebirth of a prosperous and liberal Argentina.”
The ceremony’s guests included Ukrainian President Volodymyr Zelensky, who is expected to meet Mr Milei, Hungarian Prime Minister Viktor Orban and a US delegation.
Right-wing former Brazilian leader Jair Bolsonaro also attended, as well as Uruguay’s conservative leader Luis Lacalle Pou. Chile’s leftist President Gabriel Boric was also present, but leftists Luiz Inacio Lula da Silva of Brazil and Mexican Andres Manuel Lopez Obrador were some of the major absences.
In a sign of challenges ahead, state energy firm YPF hiked petrol pump prices this week by an average of 25 per cent, with analysts and markets anticipating a sharp devaluation of the over-valued peso currency shortly after Mr Milei takes office.
“We know in the short term the situation will worsen, but then we will see the fruits of our efforts,” Mr Milei said.
“We don’t seek or desire the tough decisions that will need to be made in the weeks ahead, but unfortunately we have no choice.” REUTERS
