In Davos, Milei calls for free enterprise capitalism. Can he deliver?
In the World Economic Forum, Milei stated that the West is in danger because “Those who supposedly must defend its values, have been co-opted by a world vision that inexorable leads to socialism, and in consequence, to poverty”. He named wests’ adversaries: politicians and bureaucrats who want to stay in power and hinder growth, and radicals’ feminists and environmentalists who call for government intervention. Likewise, he pointed out as heroes the businessmen who generate wealth and have given humanity unprecedented prosperity through capitalism. The supposed beneficiaries of these capitalist heroes? The people. From the X headquarters, Elon Musk applauded the president.
These statements align with his campaigning promises: a capitalistic revolution for a moribund Argentinian economy. Argentina ranks 158th in the Human Freedom Index. The weight of the regulatory state there has increased over time, making Argentina’s ranking fall from 84th place in 2000 to 143rd place now. The country’s fiscal deficit is a shocking 15% of GDP after a decade of economic stagnation. This dire context serves as back drop for Milei’s ambitious reforms constructed on two pillars: the Executive Order “Bases for the reconstruction of the Argentine economy” and the bill “Bases and starting points for the freedom of Argentines”. Main policies include broad de-regulation of the economy, privatization of SOE’s, an aggressive fiscal adjustment policy to fight hyperinflation, and an electoral and political reform. The question is, can he deliver?
After taking office in December, a recent poll shows 63% approval for his administration. However, an annual inflation of 211,4%, which will likely increase, may indicate he has reached the peak honeymoon phase. Thus, the time to act is now. He knows it and he’s doing it. Now he must face Congress and the Judiciary branch, two major hurdles in his ability to deliver.
At Congress, he’s weak. To make things happen he must deal with two major blocs: Peronists and non-Peronists. The latter force will likely support his pro-business agenda. Nevertheless, concessions will have to be made. Privatizations will be evaluated case by case, electoral reform will be rejected, and there will be no delegation of Congress powers to the Executive branch, as Milei demanded. These demands range from freedom to pass pension reform and re-negotiating public debt, both key-elements for his ambitious economic plan. Milei has been clear with non-Peronists forces: should they stand in his way; he will single them out for sabotaging his bold recovery plan. They must find a challenging balance between exerting control over the administration, while attending the change demand coming from their constituencies, who widely support these reforms. With the support of these forces, Milei can get his bills approved.
Peronists have made it clear that they will reject any sort of economic reform. However, they could foreseeably support Milei’s political and electoral reform. His first-past-the-post proposed voting system favors incumbents and large political forces. This is a risky proposal from Milei and other political “under dogs”, considering Peronism’s machinery and electoral power. Debates around this issue will not take place in the short-term but it’s something worth keeping an eye on.
While Milei urgently needs to approve his reforms considering the inevitable worsening of the economy, debates and negotiations are advancing in the Chamber of Deputies, but not at the pace he expected. The Peronist and non-Peronist factions exert their weight and manage the times to modify points of Milei's proposals. Meanwhile, the Senate calmly waits.
At courts, Milei’s policies are already being challenged and some have been already overturned,
The labour reform case was the most significant. As every court has a say in the constitutionality of regulations, Judicial activism will keep on increasing. Industries like energy and minerals may be especially vulnerable to judicial intervention based on environmental and human rights concerns and some anti-market views. Final decisions will rest with the Supreme Court. As in Congress, there are no signs of rush from this Court to make these decisions.
Ironically enough, the tools Milei has to overcome the hurdles in congress and in the courts were crafted by his Peronists predecessors. In fact, he has already deployed one of them on Congress: executive orders. These exceptional presidential decrees have the same hierarchy as a law and are enforceable when issued. Congress exerts ex-post control that allows it to annul it if both chambers of Congress reject it. Thus, with the approval of only one chamber the executive order is saved. This contrasts with the procedure for a bill, which must be approved by both chambers. Another particularity of this process: Congress must reject or approved the entire executive order, with no possibility of modifications. It was Cristina Fernández de Kirchner who devised this procedure that Milei probably continues to use. Acutely aware of the potential political back lash of rejecting the executive order, Congress members have passed on the burden to the courts.
To face the Judiciary, Milei has two possible paths. One is appointing a new Supreme Court justice to fill a vacant seat. This opportunity will repeat itself at the end of this year when Justice Maqueda retires. This would require Senate’s approval, which will require a delicate albeit doable political dance. The other available path is taking existing lawsuits against his reforms directly to the Supreme Court. This would be done through the “Per Saltum”, a procedural law created by Kirchnerists that allows reaching the supreme court without going through lower courts. This would pressure the Supreme Court, keenly aware of the risks of hindering supposedly country saving moves from a popular administration. Just like Congress, the supreme court understands that time is an ally and wants to be a spectator of this process.
While these political negotiations are taking place, Milei is seeking regaining access to financial markets to re-negotiate external debts and have dollars to curb inflation. The IMF is backing his program and expects congressional approval for the reforms. Successfully renegotiation IMF agreements helps the administration pay upcoming debt. Additionally, expected record harvest yield in April will help contribute to trade surplus. Central bank demolition and, thus, dollarization are still far away in the horizon. Stabilization is a priority.
Argentinians currently find refuge from their stark economic reality in the leisurely abstraction of summer holidays. Come March, economic crisis will hit in an unseen scale and will prove inescapable for most. Accordingly, wide scale public demonstrations from the opposition are expected. In this critical economic situation, Milei’s political savvy is critical. Will he be able to deliver his capitalist revolution, even while losing popular support due to worsening economic factors?
