The Far-Reaching Implications of Javier “the Wig” Milei’s Election Victory in Argentina

Clearly, a majority of voters have had enough of the status quo. What they want is a seismic shift in the underlying political and economic dynamics. And that is what they will get, for better or worse (my money is on the latter).

Sunday’s electoral victory of Javier Milei, an avowed libertarian with big sideburns, a fiery temper and far-right sympathies who claims to be on a mission to rid Argentina of its corrupt political caste (sound familiar?), was not much of a surprise. He had lead the polls leading up to the vote, had been endorsed by the country’s main right-wing party, and his opponent, Sergio Massa, is currently the economy minister in a country that is on the verge of hyperinflation (CPI: 143%) and where four in ten people live in poverty.

What was surprising is how emphatic the victory was. Milei, a political nobody just a few years ago, won 56% of the votes, compared to Massa’s 44% — one of the highest electoral margins of the country’s 40-year democratic era. Massa managed to win in only three of Argentina’s 23 provinces and federal district.

Clearly, a majority of voters have had enough of the status quo. According to a close friend living in Buenos Aries province, the word one keeps hearing is “change” (also sound familiar?), which is perhaps understandable given the dire state of the economy, the high levels of child poverty (67%) and the woeful performance of Alberto Fernández’s outgoing government. What people want is a seismic shift in the underlying political and economic dynamics. And that is what they will get, for better or worse (my money is on the latter). And the reverberations will reach far beyond Argentina’s borders.

The End of Argentina’s BRICS Membership (Before It Even Began)

On the campaign trail, Javier Milei said that as president he would cancel Argentina’s entry to the BRICS and align the country with the US and Israel — a move that will certainly be welcomed by Israel’s Netanyahu government, especially given that Buenos Aires is home to the largest Jewish population in Latin America, and one of the seven largest in the world. Until now, Latin American governments have lead the way in standing up to Israel during its “gazacide“, as Kurt Hackbarth recently reported for Jacobin. Bolivia has severed diplomatic relations with Tel Aviv while Colombia, Chile and Honduras have all recalled their ambassadors.

By contrast, Milei has stated that his first two trips before taking office on December 10 will be to the United States and Israel — the latter apparently for “spiritual reasons” (presumably a reference to Milei’s desire to convert to Judaism after his presidency is over).

Relations with China, meanwhile, are likely to be a lot more strained going forward. Milei has referred to the Asian nation as an “assassin,” telling a Bloomberg News in August:

“People are not free in China, they can’t do what they want and when they do it, they get killed. Would you trade with an assassin?”

Milei has since clarified that he wouldn’t stand in the way of private business deals between Argentine and Chinese companies. Diana Mondino, Milei’s pick for foreign minister, has also played down Milei’s statements, saying he never proposed formally breaking with China, which is probably a good thing given that China is Argentina’s second largest trading partner, providing much-needed foreign currency.

Now, China’s “comprehensive strategic partner[ship]” with Argentina (in the words of China’s Ministry of Foreign Affairs spokesman Wang Wenbin) is probably over (or at least on hold). And that could be a problem given that China is heavily invested in many of Argentina’s strategic sectors, including lithium and gas — sectors that the US government and corporations also have their eyes on. Beijing is also a major creditor since signing a currency swap in 2009 with then-President Cristina Fernández de Kirchener, as Bloomberg recently reported:

Since then, China has invested billions in the country, in everything from lithium and solar power plants in the north, to a space station in the southern Patagonia region.

The ties have become even stronger in recent years, with Argentina joining Xi Jinping’s signature Belt and Road initiative in 2022. It announced plans to join the BRICS group of emerging markets, of which China is the largest, next year.

China’s investments in Argentina only reflect a fraction of its overall influence in Latin America, where it’s chipped away at the US’s dominance in recent decades. Through Belt and Road, China has poured billions into the construction of roads, bridges, trains, power grids and energy plants across the region. It’s also turned its attention toward governors instead of just national leaders, building relationships that have allowed it to invest in even the most remote areas, as it’s charged ahead to become South America’s No. 1 trading partner.

Special currency swap arrangements signed between Buenos Aires and Beijing in June and July this year have enabled the Argentine government to continue servicing its $44 billion loan package from the IMF, thus avoiding yet another default. That credit line could be at risk if Milei maintains his hard line toward Beijing. It is not hard to imagine, for example, his government blocking key Chinese investments in strategic sectors, including Vaca Muerta, an oil and shale gas reservoir in Patagonia that holds the world’s second-largest shale gas reserves and the fourth-largest shale oil deposits.

Milei has also said that his government would endorse and apply the Collective West’s sanctions against Russia, adding: “I would never support an autocratic government like Russia’s.”

In other words, on the off chance that Milei doesn’t cancel Argentina’s BRICS membership,  its is unlikely that the BRICS’ founding members will continue to endorse the membership of a country whose government supports US and/or EU sanctions against a fellow member. In such an event, it will be interesting to see whether or not the founding members opt to invite another Latin American country to replace Argentina, with the two most obvious candidates being Bolivia and Venezuela.

South American Trade bloc, Mercosur, Also on Line

Milei has also launched scathing verbal attacks on the four-nation trade bloc Mercosur, comprising Argentina, Brazil, Paraguay and Uruguay, even going so far as to threaten to withdraw from the grouping, which will probably be harder than exiting the BRICS given the role it has played in promoting regional economic integration. If it were to happen, though, the result would almost certainly be the disintegration of Mercosur, which in turn will spell the end of multi-decade trade negotiations between the trade bloc and the EU.

The hopes in Brasilia and Brussels are that pragmatism will prevail and that Milei will temper his policies toward Brazil’s President Luiz Inácio Lula da Silva once he is in office. Brazil is Argentina’s biggest trade partner but relations between the two countries already soured during Jair Bolsonaro’s presidency. They could be about to get even worse. On the campaign trail, Milei described Lula as an “angry communist” and has formally invited Bolsonaro as Brazil’s “representative” at his inauguration.

In an interview with Reuters, Mondino tried to undo some of the damage, saying that while Mercosur must be modified, it should not be “eliminated” as Milei had previously suggested. Mondino also said Argentina will seek to increase trade with Brazil. But before that she will have to find a way of mending relations between the two governments, and that’s before the Milei government has even been formed.

For the moment, Lula is happy to leave Argentina’s relations with Brazil on hold, confident in the belief that Argentina’s crisis-hit, dollar-deprived economy needs Brazil as much, if not more, than Brazil needs Argentina. It is a fair bet: the volume of Argentina’s trade with Brazil is more than twice as large as its trade with the US. Meanwhile, Mercosur and the EU are speeding up bilateral talks on a long-awaited trade deal in the hope of signing along the dotted lone before Milei comes to power.

Death of the Central Bank and Dollarisation

On Monday, the day after his election, Milei reiterated his plans to eliminate the Central Bank (BCRA), which he described as a “moral issue” as well as establish a financial strategy to resolve Argentina’s growing pile of short-term “Leliq” bonds, which broke through the 1 trillion peso (around 18.2 billion) threshold in March. As Reuters reported at the time, “the Leliq debt, denominated in pesos and auctioned daily to mostly domestic banks, helps the central bank mop up funds in the market to bolster a weak currency and bring down stubborn inflation. But with sky-high interest rates it is also raising concerns that it could become unsustainable.”

Milei’s is also talking about abolishing the peso and replacing it with the US dollar instead. A milder form of this policy was already tried in the early 1990s, when the Menem government in Buenos Aires fixed the exchange rate at a wholly artificial and unsustainable value of one U.S. dollar. This gave the country a false illusion of prosperity while making the economy uncompetitive and depriving the state of having an independent monetary policy. It ultimately paved the way to the financial crisis, and currency devaluation and deep recession of 2001, from which Argentina’s economy has never properly recovered.

What’s more, Argentina, on its own, is not in a position to undertake dollarization since for two simple reasons. As Alejandro Werner, former director of the Western Hemisphere Department of the International Monetary Fund (IMF), told America Quarterly, “Argentina does not have the dollars to dollarize, and it does not have access to the financial market to obtain dollars.”

That is, for once, a blessing. After all, if Argentina were to fully replace the peso with the dollar, it would mean the end of any semblance of Argentinean sovereignty, as the South Korean economist Ha-Joon Chang warned during a recent visit to the country:

If you want to adopt dollars as your official currency you should apply to become a colony of the United States of America because that’s what it makes you. This means your macroeconomic policies will be written in Washington DC.

That would, of course, suit the US government just fine. After all, Argentina has huge deposits of mineral resources that it already has its sights set on, including lithium and natural gas. And if a G20 economy like Argentina were to adopt the dollar, it may go some way to counteracting the BRICS’ efforts to reduce the dollar’s influence in global trade. Building stronger economic ties with Argentina will also help to erode China’s growing influence in South America.

But will Washington be prepared to pour significant funds into such a venture; according to estimates from the Spanish financial daily Expansión, the initial outlay alone could cost as much as $100 billion, for a project that is likely to take years to complete, and what’s more with a government that still owes the IMF $44 billion as well as billions to China. And  that is a lot of money to the Biden Administration, especially with Congress blanching at providing more funds for the Zelensky government in Ukraine.

But much of the money could come from the private sector. Even as early as July, Milei’s team was quietly bragging about garnering pledges from private investment funds to buy up $35 billion of bonds to help finance Milei’s dollarisation program. The gamble is, of course, hugely risky but the potential returns could also be huge. Plus, the investment will not have the currency exchange risks normally associated with investing in Argentina for the simple reason that the investors will be paid in dollars, not Argentine pesos.

Another Era of Privatisation and Plunder

Seventeen months ago, another political earthquake took place in South America. The former Marxist guerrilla fighter Gustavo Petro made history by becoming Colombia’s first left-wing president since the country won independence in 1819. As I noted at the time, the election outcome, much like this one, could have important repercussions far beyond Colombia’s borders, particularly in terms of its relations with its long-estranged neighbour, Venezuela, as well as its military ties with the US, which has at least seven official military bases on Colombian soil.

Petro’s election has also had repercussions for Colombia’s relations with Israel, a close military ally that had trained and equipped many of Colombia’s soldiers and paramilitaries. The Petro government recently recalled its ambassador to Israel for consultations and its legal teams are preparing lawsuits to file before all international courts against Israeli Prime Minister Benjamin Netanyahu. Petro is also threatening to halt all arms purchases from countries that voted against or abstained in the UN vote for a ceasefire in Gaza. That could, of course, include the United States, Colombia’s largest strategic ally in matters of defence.

Interestingly, the day that Petro won the election, Colombia’s stock exchange fell 6% — in response, no doubt, to his government’s proposed plans to reform the tax system, by introducing a more progressive system of income and wealth taxation, tackle agrarian reform and provide broader public access to healthcare. By contrast, Argentina’s MERVAL stock market finished the day up over 7%. It’s not hard to see why: what Milei is offering is another mass sell-off of state-owned assets to foreign multinationals.

The high risers included Argentina’s majority state-owned Argentine energy company YPF, which will be among the first of the state’s public assets to be privatised. The company was already privatised during the Carlos Menem presidency 1989-99 and then renationalised in 2010 by the Cristina Fernández de Kirchener government in 2012. Today, the idea of selling off the company, presumably to a US or European corporation, makes zero sense given that YPF is sitting on 40% of one of the world’s biggest oil and gas fields, the 8.6-million-acre Vaca Muerta (Dead Cow).

The new government will also be selling off Argentina’s public television and radio broadcasters and the state-owned news agency Telam. In the size of the government’s public debt (almost $400 billion, equivalent to roughly two-thirds of GDP) as well as the challenges it will inevitably face trying to service its IMF loan and Chinese credit line at a time of negative central bank reserves, Milei has the perfect alibi for taking his metaphorical chainsaw to all state assets of any value, just as was always the plan.

“Everything that can be in private sector hands will be,” he said.

Whether that includes health and education remains to be seen. These are the only two areas of public services that survived relatively in tact the neoliberal dismantling of the 1990s by Carlos Menem, whom Milei has labelled as the best president in Argentina’s democratic history, and the crisis of 2001. Public education – at all levels – and health, the last two remaining jewels in Argentina’s crown, are unique in all of America and in much of the world, notes the independent journalist Emiliano Gullo:

In Argentina, five Nobel Prize winners were formed (two in physics, one in Medicine and two in Peace). One of them, Bernardo Houssay, created Conicet, the most qualified public research institute in South America that Milei has promised to close. Mexico has only one Nobel Prize in hard sciences. Brazil, none. The list of public institutions that cemented Argentine culture and identity crosses disciplines such as cinema, sports, and literature. On Sunday night, 55% of the population turned their backs on Argentina and the country took another step in the process of Latin Americanization, which began in 1976 with the military dictatorship and the first wave of neoliberalism.

The incoming government has also proposed eliminating all state subsidies for public transportation, which will hit the pockets of the poorest precisely at a time when prices for most other things are already out of control. The government says the removal of the subsidies will help bring inflation down, which in turn will offset any economic pain occasioned by their removal. But these policies, even if they work, take time to feed through. And the government is preparing for widespread economic pain and discontent anyway, which is where Milei’s vice president, Victoria Villarruel, comes in.

Dark Echoes of the Past

The daughter of a high-ranking member of Argentina’s armed forces who refused to pledge loyalty to the constitution of Argentina’s new democratic system in 1987, Villarruel has made a name for herself by challenging the decades-long consensus over Argentina’s dictatorship as well as questioning the number of victims, dead and disappeared it left in its wake. The lawyer now seeks to pull off what seemed unthinkable until recently: the political triumph of a revisionist current that challenges not only national court rulings after the fall of the dictatorship in 1983, but also the verdict of history.

In 2020, she signed the Madrid Charter, a document drafted by the far-right Spanish party Vox that describes left-wing groups, such as the São Paulo Forum and the Puebla Group, as enemies of Ibero-America and accuses them of engaging in “a criminal project under the umbrella of the Cuban regime” that “seeks to destabilise liberal democracies and the state of law.”

The day that Milei and Villaruel take office, December 10, will mark 40 years since Argentina’s return to democracy. It will also be the first time that a political party with family, emotional, and material ties to the military dictatorship takes power, notes Gullo:

Like a Trojan horse but with flashing neon signs, the Military Party… has just entered a government in a democratic manner. In addition to denying the symbolic figure of the 30,000 disappeared and constantly denigrating the Mothers of Plaza de Mayo, Villarruel is the daughter and niece of convicted soldiers, and has the support of the torturers who are imprisoned for crimes against humanity.

And she will be in charge of defence and law and order, so once the inevitable protests, strikes and pickets begin, following the first wave of spending cuts, privatisations and mass job losses, it will be her calling the shots. The resulting crackdown is likely to be brutal.

The one consolation is that Milei and Villarruel will not control either of Argentina’s legislative chambers, and will depend on the support of other parties, many of which oppose their broad agenda. But that doesn’t change the fact that right-wing demagogues are once again back in power in Argentina. And they are making headway in many other countries, including in Europe. And that bleak reality, writes the Spanish journalist Rafael Narbona, is the result of the failings of our democratic systems as well as the enthusiastic embrace by left-wing parties of the underlying theses of neoliberalism:

Democracy is not a question of votes, but of values. Milei intends to cut social rights and whitewash the Videla regime. His program is not democratic and harms the weakest sectors of society. Why has he gotten so much support then? Perhaps because since the eighties the left has assumed the theses of neoliberalism.

In Spain, Felipe González allowed real estate speculation, implemented bullshit job contracts, fought unions, cultivated corruption, resorted to state terrorism, applied a fierce program of deindustrialisation and got Spain involved in the first Iraq war. In the years that followed, voters experienced the impression that the right and the left only differed on minor issues, as they pursued the same antisocial agenda, protecting elite interests. It was not a local phenomenon, but a global one.

The demagogues took advantage of this situation to prosper. Trump, Bolsonaro and Milei have presented themselves as anti-system politicians, but the truth is that they are the most solid pillars of a system that continues to undermine the welfare state, favouring large commercial corporations. Media solely concerned with economic power and a growing disinterest in culture have also played their role in the rise of the demagogues.

The left will return to power, but it is not unlikely that it will make the same mistakes again. When a statesman tries to carry out radical changes, he fatally seals his fate, as happened to Salvador Allende, Olof Palme and Patrice Lumumba.