Javier Milei 2.0
Gradualismo no mas.
The following piece was written by Mary Williams Walsh, managing editor of News Items, who frequently writes about the financialization of politics and the politics of finance. It describes the remarkable transformation of Javier Milei, Argentina’s new president. Having campaigned as El Loco, the “chainsaw populist,” he is now presenting himself as the Hank Paulson of Argentina’s economy.
The odds of a successful Milei presidency are so low they are barely perceptible. The political forces and financial facts aligned against him are enormous, and may well be overwhelming. Betting against him is the smart play. Whether it’s the right play is another matter. Whatever else Milei might be, and he’s been many things, he is extraordinarily shrewd.
Here’s Mary’s piece:
Since his election as President of Argentina on November 19, Javier Milei has undergone a remarkable transformation. As a candidate, he brandished a chainsaw, promised to scrap the peso and burn down the central bank, threatened to cut ties with Argentina’s biggest trading partners, and insulted seemingly anyone within range. The president of Brazil was “an angry communist.” China was “an assassin.” The pope was “an imbecile.” Rival candidates were “lying swindlers,” “thieves and murderers,” “the worst thing to happen to Argentina,” or just “soft.”
But now the dragon has stopped breathing fire. President-elect Milei just wants to “restructure” the central bank, not burn it down. He’s gone silent on his signature plan to replace the peso with the U.S. dollar. He’s invited that scary communist in Brazil, Luiz Inacio Lula da Silva, to his inauguration. (Lula has not yet responded.) He’s stopped saying China kills dissidents. He issued a press release saying “His Holiness, Pope Francis” had called to offer congratulations and a rosary. When Milei goes out these days, he leaves the chainsaw at home.
Notably, Milei has bonded with top officials from the administration of Mauricio Macri, Argentina’s president from 2015 to 2019 and a towering pillar of economic orthodoxy. (He’s the one Milei called “soft.”) Milei’s dollarization czar got the message and left the transition team. Now Milei is working closely with Luis Caputo, a former president of the central bank of Argentina and finance minister under Macri. Caputo came with Milei to New York and Washington this week for talks at the Treasury, the White House, and the International Monetary Fund, among others.
The meetings were cordial. At the end of the day on Tuesday, Milei posted a photo of his team at the White House on X, the former Twitter. He said National Security Advisor Jake Sullivan “expressed the willingness of the United States to collaborate in the transition of the incoming Argentine government in the face of the challenging political, economic and social situation that the country is going through.”
The IMF said in a statement that the president-elect had laid out his “plans for urgently strengthening stability and setting the basis for more sustainable growth.”
“Both teams will remain closely engaged in the period ahead,” the IMF added.
Before the trip, Milei had said that he wasn’t going to the United States to drum up financing. But he’s going to need it soon. Argentina’s outgoing government burned through the country’s hard currency reserves and has been shut out of the global credit markets. With no hard currency, no ability to borrow, triple-digit inflation and a shrunken peso, Argentina has been limping along on a $44 billion IMF loan that it cannot repay, and an $18 billion currency swap line with China. The outgoing government used the swap line to make its payments to the IMF in yuan; it also used a portion of the IMF loan to repay a previous swap line with China.
It’s a situation without precedent and clearly not sustainable.
But what has become of Milei the firebrand? In October, he finished second out of five candidates in the first-round balloting of Argentina’s presidential race. That qualified him for the November runoff. The frontrunner was Sergio Massa, Argentina’s outgoing economy minister, a peronist who is often called a moderate. (Milei called him “a lying, cynical, coached, and arrogant politician who believes that the State belongs to him.”) Only the top two candidates would continue to the runoff.
The next day, Milei met privately with the candidate who came in third. That was Patricia Bullrich, of the Together for Change coalition, which is usually described as center-right. Macri was Together for Change’s candidate when he won the presidency in 2015. Bullrich was his security minister.
She had been the frontrunner for president this year, until an August primary when Milei, chainsaw roaring, unexpectedly blew past her and the other candidates and came in first. In the heat of battle he had called Bullrich a “terrorist” who had “bombed kindergartens.” She had sued him for defamation, saying no Argentine kindergartens had ever been bombed, by her or anyone else.
But by the time of their meeting in October, they had patched things up. He said he’d misspoken. She withdrew her lawsuit. Bullrich now knew she was not going to be president, but she still had a pretty good hand to play: Some 6.2 million Argentines had voted for her. That would be enough to put Milei into the Casa Rosada if she told them to vote for him in the runoff.
Their meeting was private, so I don’t know what they said. But it’s easy to imagine Bullrich telling Milei that they’d had their differences, but now it was time to focus on what they had in common: They were both enemies of peronism, the populist movement based on the ideas of Juan Perón, Argentina’s president from 1946 to 1955. Perón said his movement was about social justice, but to both Milei and Bullrich it had devolved into a vast, corrupt political machine that drained the treasury to buy the public support needed to stay in power. They could agree that years under peronist leadership had bankrupted the country. The occasional non-peronist who broke in and tried to change things was invariably blocked, sabotaged, and replaced by another peronist. Reform was impossible unless Argentina moved beyond all that.
Now Milei had the chance to do it. Bullrich had the votes to put him over the top. But he would have no margin for error. One mistake and the peronists would have his head. Bullrich had watched it happen to Macri. To succeed, Milei would have to build a strong government, with credible, seasoned people in his cabinet. Together for Change had some ideas about that. Milei would also have to rebuild Argentina’s relations with the international financial community. He had a gift for rallying Argentina’s angry, inflation-weary voters, but investors needed to hear a different kind of voice. Together for Change had ideas about that, too.
After the meeting, Bullrich endorsed Milei. Weeks later he was elected president by a big margin. He stopped talking about burning down the central bank the night he won. A few days later he appointed Bullrich his minister of security, the same position she had held under President Macri. He hasn’t appointed an economy minister yet, but people think Caputo’s the likely choice.
Before joining Macri’s government, Caputo was a banker himself, first at JPMorgan, then at Deutsche Bank. He seems to know how to explain things to bankers. Shortly before leaving for the United States, he met with some two dozen bankers in Buenos Aires to present Milei’s economic plans. He told them, among other things, that Milei’s famous plan to swap out the peso for the dollar would be sitting on the back burner for a while. That was because the Milei administration’s first priority had to be balancing Argentina’s budget. It was going to be extremely difficult, and they wanted to get it done by 2024.
Milei said on local television that when Caputo finished his presentation, the meeting ended and the bankers “all came out happy.”
“There is no better financial expert in Argentina,” he beamed.
When Macri, as president, had tried to balance Argentina’s budget, he relied on “gradualismo,” or moving slowly to soften the pain that spending cuts and tax increases would inevitably cause. It seemed to work at first, but after a couple of years, international lenders started thinking Macri’s reforms were taking too long and lost faith. They stopped making credit available to Argentina. Things quickly went sour. In the end, Macri’s government had to seek emergency help from the IMF. That’s where the $44 billion loan came from. It’s the biggest IMF rescue package to any country in the world.
Milei doesn’t want to repeat the mistake of gradualismo. He said in the television interview that he plans to call congress to an extraordinary session the day after his inauguration, December 11. The regular session doesn’t start until March, but Argentina can’t wait that long. He called his legislative proposals “shock therapy,” and said he was emboldened by the fact that Argentina’s bonds have rallied in response to his election.
“This has given us greater strength to redouble our bets in favor of fiscal order,” he said. If the financial markets keep on providing a tailwind, the coming shock therapy “will be painful, but a lot less painful.”