In less than two months Milei has achieved the feat of reducing the public deficit from 5% of GDP to a government’s financial surplus in January.

What he thought he would achieve in a year he has made it possible in less than eight weeks.

The magic consists of suspending public works, reducing subsidies to certain public services such as transport and reducing transfers from the national state to the provinces.

A zero-deficit policy in line with the now popular mantra of “no hay plata” (there is no money).

The IMF applauds the measures, which have the support of the Biden administration, while Argentines suffer the highest inflation in the world – 254% annually in January -, see poverty rise to 57.4% and shopping in the supermarket is a much greater feat than that displayed by the libertarian government in the management of the macro-economy.

On the political level, Milei faces confrontation with both the Congress and the governors of the provinces, while the right to demonstrate is being curtailed in an attempt to mitigate the picket lines that for years have hindered the free movement of citizens.

Argentina is certainly in the middle of a storm, with the risk of being engulfed in it.

In this article I describe the Milei administration’s first steps in economic, domestic and foreign policy.

Good reading.

Javier Milei has barely been in the Casa Rosada for two and a half months, but the changes have already been felt, and in what a way, both in the state coffers and in the pockets of Argentines.

If in our last post, we referred to the austericide that would mean reducing a public deficit of 5% of GDP in just one year – such was the initial objective – the surprise is that such a feat has already been achieved in the first full month of Milei’s administration!

The Argentine state had a financial surplus in January of this year, the result of a sharp cut in public spending based on the paralysis of public works, the massive withdrawal of subsidies for certain services such as public transport and the reduction in transfers from the federal government to the provinces.

Milei offers a smile from ear to ear at such a milestone, which has caused inflation to rise to 254% year-on-year in January – the highest in the world -, poverty from 49.5% to 57.4% according to the Catholic University of Argentina and a drastic drop in economic activity. In fact, the IMF has lowered the growth forecast for Argentina in 2024 from an initial positive 2.8% to – 2.8%.

On the economic front, then, the libertarian government has so far shown a balanced public finances with a zero deficit policy, rising inflation, but with signs of slowing down in the coming months, a policy of cutting certain subsidies that according to Milei were distorting the economy and its relative prices, and a sharp increase in the BCRA’s (Central Bank of the Argentine Republic) international reserves.

Since the new administration came to power, the monetary base has not increased, thanks to the balance of public finances that makes it unnecessary to finance the Treasury, but it has nevertheless been issued to buy dollars and rebuild the central bank’s battered reserves. A new feat considering the track record of the previous government, which tried to maintain the exchange rate by continually selling off dollars.

Milei’s government, by contrast, has opted to devalue the peso sharply, bringing the official exchange rate and the parallel exchange rate almost to the same level, with a view to a future dollarization or currency competition between the US dollar and the local currency.

For the moment, then, what we see is the traditional recipe of the old Washington consensus, consisting of balancing the macro at the cost of worsening the micro.  It remains to be seen how the social mood will improve in the coming months, especially in March and April, when, in the words of the president himself, «the hardest time» will come.

It is on the political front that Milei seems to be having the most problems.

His emblematic omnibus law, which sought to transform not only Argentina’s public sector but the economy as a whole, has been shot down by a Congress that he does not control, and in which he was unable to forge alliances that would allow him to pass his star project.

To this must be added the rebellion of a good part of the governors – none of them from his own party – in the face of the sharp cut in the funds they receive from the central government, which is causing them problems in paying the salaries of their civil servants. The province of La Rioja, in order to get out of this situation, has decided to issue a quasi-currency, which the central government has already called unconstitutional.

While Milei has had no problem bringing on board countless political figures from what he calls the political caste – both from the classical right and even from Peronism – he has not been able to seduce certain sectors of the former Juntos por el Cambio (both PRO and Unión Cívica Radical), or even members of his own ranks of La Libertad Avanza, who have opted to vote no to the reform bill sent to parliament.

The official response, in all these cases, is usually insult or public scorn. This is a display of political finezza for the president with the least institutional power in Argentine history.

In terms of social protest and democratic quality, the so-called anti-picketing protocol stands out, as the demonstrations that take place almost daily in Argentina – especially in the city of Buenos Aires and its metropolitan area – hinder traffic and the lives of citizens to an extent that is hard to imagine in Europe (a sort of almost daily succession of yellow waistcoats, to put it another way).

The libertarian recipe, designed by the Ministry of Security, is that demonstrators should not be allowed to occupy the street, but should demonstrate on the pavement. Just like that. This is an ode to the right to demonstrate that would make any European liberal democrat blush. The majority of Argentines, however, seem to support it, fed up with so many years of picket lines that make it difficult for them to get to work or to travel peacefully by car or public transport because of the untimely blockades of streets or motorways leading to the capital.

In the international political arena is where Milei seems to be reaping the greatest achievements.

After a realignment of foreign policy, which has shifted the focus from the Global South to the North, Argentina’s refusal to join the BRICs – so as not to share the stage with countries such as China or Iran – and its rapprochement with the United States in particular and the West in general stand out.

Milei’s recent visit to Israel is a clear example of this, as well as his good relations with the IMF and the Biden administration.

In fact, both Secretary of State Antony Blinken and IMF Deputy Managing Director Gita Gopinath have been in Buenos Aires in the last week and have expressed their willingness to continue working with the Argentine administration and provide the necessary support to stabilise the economy.

And to this repositioning must be added the restoration of relations with Pope Francis – whom Milei had strongly offended during the election campaign – during the recent visit of the Argentine leader to the Supreme Pontiff in the Vatican, whom he invited to visit his country this year. It seems that the Pope has accepted the libertarian’s apology and was in good terms with him – a good show of Christian faith, after all.

If Milei wants to continue navigating the turbulent waters of the Argentine presidency, he should soon score a goal, as an Argentine economist has said; that is, offer some positive and tangible result to ordinary Argentines, so that they see that the effort he is putting them through has or will have a translation into their daily lives and will not remain mere numbers to show off to international organisations, investors or the media.

That, and to improve his relations with the rest of the political forces, in order to be able to move forward with the projects he needs to sustain his political and economic programme, and to maintain peace and institutional balance in a country governed by a liberal constitution inspired by his admired Juan Bautista Alberdi, whom he often quotes on a recurring basis.

We will closely follow developments in Argentina in the coming months. Fortunately, from the side-lines.