Will Milei live up to the high expectations?

Many people in Argentina hope that the president’s reform program will be successful. He has also become a new beacon of hope for the German economy and politics.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

At the moment, German delegations are making their way to Buenos Aires: last week alone, two Bundestag committees, representatives of the Ministry of Economics Affairs and the Bundesbank came to Argentina. Further groups of visitors are set to follow.

The interest of German politics and business in Argentina is new. Argentina is traditionally an important partner country for Germany in Latin America. Nevertheless, it has not been the focus of German public attention for a long time due to its ongoing economic and political crisis.

That is currently changing. This is mainly due to Javier Milei, who has been ruling the country as president for around three months. Milei, a political career changer, has triggered a cultural change in Argentina’s politics and society with his rapid rise from a surprisingly elected MP three years ago to his election victory last November.

This is due to his radical reform program, which he is implementing exactly as announced during the election campaign. His aim is to reduce the chronic budget deficit and prevent the state from continuing to finance itself with the printing press. Argentina should finally become a country with a stable currency.

Despite the radical cuts and the associated social impositions, the majority of the population continues to place its hopes in the 53-year-old economist. This is astonishing, as poverty has risen sharply. The government has cut state services – for schools, energy, transportation – and subsidies or no longer adjusts them to inflation. This means that people have less and less purchasing power.

At the same time, Milei continues to pursue a confrontational course against established politics, the “caste”, as he calls it. They are responsible for Argentina’s century-long decline. This criticism continues to make him popular among his supporters.

However, it makes it more difficult to achieve the political consensus that the government will need at some point in order to put together a sustainable reform package. This is because the costs of the adjustment are currently being borne primarily by the poor, pensioners and all recipients of state benefits.

The government is now trying to find a consensus with the governors in order to come closer to a compromise in Congress. But with his constant provocations towards politicians, Milei is threatening to overstep the mark. Understanding for his aggressive tirades is also waning among the population when something doesn’t suit him.

His strategy is risky: the government hopes that inflation will continue to fall. The current recession could then be replaced by initial growth in the second half of the year.

A survey conducted by the industrial association Union Industrial Argentina in February shows the change in sentiment compared to the previous year: back then, entrepreneurs saw the future of the economy as bleak. Now the outlook has brightened considerably for half of the members.

However, it will be crucial that the majority of the population remains convinced that Milei is on the right track – only then will the president have a chance of continuing his radical reform course.

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