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Market Advisory • November 20, 2023 • Written by: Ongresso - Business Beyond Borders
Argentina's historic shift to right-wing populism has several implications for the country, the region and for investors. On November 19, 2023, Javier Milei was elected as the next president of the nation, marking the end of decades of center-left Peronist political tendencies. The margin of victory was of 55.8% to 44.2% against runner up candidate Sergio Massa, who had won the primaries a month ago. This victory raises questions about the future of Argentina and its place within the broader Latin American context.
Content
A New Era of Right-Wing Populism: Milei's Economic Vision
Implications for Argentina's Economy
The Road Ahead for the Country
A New Era of Right-Wing Populism: Milei's Economic Vision
Milei, a self-proclaimed libertarian economist, has pledged to implement a radical economic agenda aimed at reducing government intervention, cutting taxes, and promoting free-market principles, as well as the dollarisation of the economy. Sometimes compared to former US President Donald Trump, his policies have undoubtedly raised controversy throughout the campaign. While describing himself as "anarchy-capitalist", the newly elected president has shown support for ideas such as the sale of human organs. For many however, he is the change that Argentina so deeply needed after the country's annual price rises hit 142.7 % last month.
Implications for Argentina's Economy
It's yet unclear how Milei's presidency will affect Argentina's economy. While his detractors caution that his ideas could spark social upheaval and economic instability, his supporters contend that they will spur economic growth and create jobs.
If Milei's economic plan is carried out in its full, Argentina's economy may be significantly impacted. The reduction in government spending will inevitably lead to a reduction in public services, which in turn could have an impact on social welfare, healthcare, and education initiatives. Furthermore, the proposed tax cut could increasing the gap between the rich and the poo, as thewealthiest may gain disproportionately from it
On the other hand, Milei's initiatives could potentially boost economic expansion by lowering government bureaucracy and promoting private investment. If the dollarisation of the economy is carried out successfully, Argentina's ongoing inflation and currency volatility may come to an end. However, this transition will be a difficult adjustment to make, as it would require significant financial resources and careful planning. Not to mention that this reform is practically impossible to implement, given that the country has no access to international credit and lacks dollars in its central bank.
A Divided Nation
Bearing this in mind, it is clear that Milei's victory might exacerbate the deep divisions that exist in Argentine society. His supporters are largely working-class and middle-class voters who are frustrated with the country's economic woes and corruption. His detractors, on the other hand, fear that his policies will benefit the wealthy at the expense of the poor and vulnerable.
A worry that remains broadly however, refers to environmental questions, and especially, environmental justice. Milei has repeatedly mentioned that he wants his country to disengage from the Paris climate agreement, focusing on exploitation of resources rather than impacts of deforestation. That also implies negative effects on Indigenous people, as well as renewable energy and the promotion of more sustainable agricultural and livestock practices.
The Road Ahead for the Country
The challenge of Milei's administration will be whether or not he can bring the nation together and keep his word. Additionally, it will put Argentina's democratic institutions to the test of their tenacity. The country faces a number of challenges, including high inflation, high unemployment, and a large external debt. Whether Milei can successfully handle these obstacles is still to be seen.
In Argentine history, Javier Milei's election represents a turning point. His victory represents a rejection of the status quo and a desire for change. It is too early to say what the long-term implications of his presidency will be, but it is clear that Argentina is entering a new era.
Implications for the Region
Milei's victory is part of a broader trend of right-wing populism gaining ground in Latin America. In recent years, far-right leaders have been elected in Brazil, Colombia, and Peru. Milei's win could further encourage right-wing populism in the area. Former Brazilian president Jair Bolsonaro has already endorsed the newly elected's win, pointing to the possible resurgence of far right populism.
Milei's victory could also lead to a more divided region. His economic policies, which are focused on reducing government intervention and cutting taxes, are likely to be opposed by left-wing governments in other parts of Latin America. This could lead to increased tensions and conflict between the two sides.
It is difficult to predict the implications for the region overall, as international leaders are yet to react to the election. Moreover, depending on which direction Milei's government takes and which policies are to be implemented, the relations with neighbouring countries and the region may also be affected in different manners.
What is certain is that for Latin America, Milei's victory represents a turning point. His rise to power could reshape the region's political landscape and have a significant impact on its economic trajectory. The next few years will be crucial in determining the long-term implications of Milei's presidency for Argentina and the region as a whole.
Implications for Investors
Milei's economic policies could have a significant impact on the Argentine economy, with both benefits and risks for investors.
His plans to reduce government spending and cut taxes could lead to a decline in public services and a slowdown in economic growth. However, they could also lead to lower inflation and interest rates, which could be positive for investors.
Milei's victory could also lead to increased volatility in the Argentine stock market. His policies are likely to be controversial, and there is uncertainty about how they will be implemented. This could lead to investors buying and selling Argentine stocks more frequently, which could increase volatility.
- Potential Benefits:
- Reduced government spending and taxes could lead to increased private investment and economic growth.
- Dollarization of the economy could end chronic inflation and currency instability.
- Potential Risks:
- Cuts to social welfare programs could exacerbate existing social and economic inequalities.
- Dollarization of the economy could be difficult to implement and could lead to short-term economic disruptions, in turn leading to uncertainty and volatility in Argentine stocks
Overall, the implications of Milei's presidency for investors are complex and uncertain. Investors should carefully consider the potential risks and rewards of investing in Argentina under Milei's leadership.
Conclusion
Milei's victory is a significant development for Argentina and for Latin America. It is too early to say what the long-term implications of his presidency will be, but it is clear that his election will have a major impact on the region and on investors.
Here is a summary of some specific implications for investors in Latin America:
- Investors in Argentine stocks should be prepared for increased volatility. Milei's policies are likely to be controversial, and there is uncertainty about how they will be implemented. This could lead to investors buying and selling Argentine stocks more frequently, which could increase volatility. Additionally, the dollarisation, which has been said to be practically infeasible, also represents a risk for short term disruptions.
- Inequality may increase. The cut in government spending could represent a surge in equalities within the countries, especially after decades of Peronism. Inequalities within different population groups, such as indigenous people through anti climatic policies and exploitation of natural resources.
- Milei's victory could lead to increased competition from Argentina. Milei's plans to reduce government intervention and cut taxes could increase private investment and economic growth, making Argentina a more attractive destination for businesses.
- Inflation may stabilise. Although there is a potential for uncertainty and volatility linked to the dollarisation of the economy, it might also be a solution for a stabilisation of the inflation, if correctly implemented. This in turn would lead to more stability.
Overall, Milei's victory is a significant event that could have a major impact on Argentina, Latin America, and investors in the region. It is still very difficult to foresee in which direction the country will go, but what is for sure, is that it will be a radical shift from the past.