Will Milei put ideology before policy?
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Javier Milei was inaugurated on Sunday 10 December. His victory in November's run-off election reflects the Argentine electorate’s disillusionment with the political establishment. His triumph is above all a punishment to President Alberto Fernández’s administration – and the wider political establishment – for failed promises of economic stabilisation and prosperity. After decades of economic volatility, his supporters now have high expectations around his capacity to bring lasting changes.
One of the main uncertainties surrounding the new government is whether Milei will put ideology before policy throughout his mandate. In other words: will he moderate his proposals, and adopt a pragmatic style? On the one hand, if Milei moderates, he assures governability and higher levels of political stability; on the other, he risks losing popular support as voters are likely to perceive his moderation as him turning into the establishment they rejected when they voted.
Milei had already moderated his aggressive tone throughout his campaign, as his chances of winning the election increased. His advisors played an important role in assuring voters that the administration would evaluate the conditions and details of each measure before implementation, in an attempt to assuage concerns that he could be a wild-card president. Voters interpreted Former President Mauricio Macri’s (2015-19) and third-place presidential contender Patricia Bullrich’s support as an additional layer of moderation. The terms of this support included the appointment of former Central Bank President Luis Caputo (2018) as Finance Minister – he has a technical profile that injects credibility into the administration and reduces concerns of radicalisation regarding the economic agenda.
However, in his victory speech, Milei showcased an uncompromising stance, rejecting gradual adjustments or reforms. The broad margin of his victory (he won 55% of votes, an 11-percentage point lead over Sergio Massa) means that there is not an imminent need to further moderate his rhetoric, as he has a significant popular mandate. Argentina’s hyper-presidentialism also suggests that Milei is unlikely to have reason to tone down his aggressive rhetoric throughout his term. Therefore, Milei will likely adopt a mixed stance: he is likely to maintain an aggressive rhetoric in some topics, such as security and cultural issues to keep his supporters energised but will likely adopt a more pragmatic stance with the economy and with foreign relations.
In any case, he will face several challenges to governability and to the implementation of his agenda. Milei’s La Libertad Avanza coalition has fewer than a third of the seats in both houses of Congress, and no other party or coalition will hold a majority. A fragmented Congress will prevent stable legislative majorities, limiting the ambition and viability of Milei’s agenda. Milei will likely resort to seeking support from the most conservative factions of JxC to pass his agenda. Even so, he will face difficult case-by-case negotiations and his most disruptive proposals (such as significantly cutting public spending) will face resistance in Congress and on the streets.
Furthermore, the likely use of presidential decrees to evade legislative control will fuel institutional clashes and uncertainty. Milei will likely heavily resort to presidential decrees in the 12-month outlook, particularly to undo the past administration’s unorthodox measures. The opposition is likely to claim abuse of power if Milei issues too many presidential decrees, further fuelling political instability. The Supreme Court, Attorney General’s Office, Inspector General’s Office and Comptroller Office’s will act as effective counterweights against abuses of power.
Milei signalled that stabilising the economy and avoiding hyperinflation will be his priority. This includes stopping money printing at the Central Bank, lifting capital controls and unifying the country’s diverse exchange rates. Spending cuts and fiscal discipline are also part of Milei’s “shock therapy” to solve Argentina’s fiscal, monetary and currency issues. The positive market reaction to Milei’s win in the November 19 run-off, evidenced by a rally of sovereign bonds and YPF’s debt, emboldened the President-elect to pursue this agenda. The social costs of it, however, will likely dwindle his popularity throughout his mandate. As in other countries in Latin America, Milei’s administration will likely enjoy a short honeymoon period before his popularity begins to drop.
Ambivalences will be a constant feature of Argentina’s political landscape in the coming months. For instance, while Milei will likely underdeliver his campaign promises, he is also likely to bring about positive economic results if he is able to reduce fiscal deficit and stabilise inflation. Even though Argentines want economic improvement, they do not want the social costs associated with austerity measures, which will fuel discontent and protest activity in the coming years. The economic, political and social conundrum the new president will encounter highlights increased political uncertainty and instability, at least in the first months of the new administration.
Marina is Control Risks’ Associate Analyst for the Southern Cone, with a focus on Argentina and Uruguay. She produces regular updates for Control Risks’ online services and writes consultancy reports on political, operational, reputational and security risks.
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