Is Milei’s ultraliberal experiment advancing in Argentina?

The radical reforms promoted by the ultra-liberal Javier Milei since he became president of Argentina, 45 days ago, face political, economic and judicial obstacles, to which a general strike was added this week.

The fate of the reforms raises questions in several areas:

How is the crisis continuing?

The 50% devaluation and the liberalization of prices boosted the already high inflation, which closed 2023 with 211% annually and, according to analysts, in January it will equal December’s 25.5% monthly. The minimum wage is 150,000 pesos ($172) and the food basket for a household of four is 240,000 pesos ($277).

Inflation erodes the purchasing power of wages, and also hits business income.

International monetary reserves increased US$ 4,000 million, to US$ 25,000 million, thanks to the increase in revenue from greater amounts of exports and purchases made by the Central Bank to rebuild this stock of foreign currency.

The other side of the coin is seen in the import sector: the automotive industry, for example, faces difficulties in obtaining the necessary foreign currency to buy the parts it needs abroad.

The IMF has welcomed the spending adjustment promoted by the government and agreed to revive a US$44 billion credit program with Argentina.

“We are taking measures that are unpleasant and that go against our own convictions, such as increasing some taxes,” Economy Minister Luis Caputo said Thursday.

What is the social reaction?

The country’s largest unions organized a general strike on Wednesday that mobilized tens of thousands under the slogan “The country is not for sale”, the first major demonstration against the fiscal adjustment and Milei reforms.

The government minimized the protest, described the union members as “mafiosi” and said that it will maintain its “north”: zero fiscal deficit in 2024, through drastic spending cuts to “the political caste,” which according to the opposition affect the basic functioning of the State, already retired and beneficiaries of social assistance.

Several surveys attribute to Milei a positive image close to the percentage that brought him to power in the November 19 runoff, when he obtained 55.6% of the votes.

“The best scenario is that after 2023, which started with 6% inflation (monthly) and ended with 25.5% and 211% accumulated inflation, the year 2024 starts in the 22.5% zone and ends in the 6% zone. and that the accumulated inflation is 200″, summarized economist Marina Dal Poggetto, executive director of Eco Go Consultores.

But he warned that governability is one of the vertices – along with stabilization and reform programs – that Milei needs to master, and this aspect is still “a big question mark.”

What is Congress debating?

Milei sent to a very fragmented Congress – his party is the third minority – an “Omnibus Law” of 660 articles with reforms to laws and regulations of all kinds, whose central goal is to reduce the role of the State and liberalize the economic system as much as possible.

Due to opposition objections, the government withdrew almost 150 reforms from the original text, but only achieved limited support to debate the law next week.

The opposition rejects taxes on regional exports, reductions in pensions, control by the Executive of a pension savings fund of more than US$ 20,000 million, privatizations and the delegation of legislative powers to the government.

The consulting firm Abeceb indicated in its latest report, in reference to Milei’s measures, that “Argentina is a country with a long history of reforms – of different orientation – that have failed due to lack of political support or technical consistency.”, and warned about the ““legal uncertainty” What does this entail? “frequent change of rules of the game.”

Why does Justice intervene?

Milei’s other major political and economic initiative was summarized in a mega Decree of Necessity and Urgency (DNU) of 366 articles that he issued in December and whose validity has been questioned by the majority of constitutionalists.

“The DNU forces limits accepted by the Constitution, or directly violates it. Of the 366 articles, in half it is not understood what the exceptional circumstance is that prevents waiting for the processing of a law”, summarized the constitutionalist Félix Lonigro.

The justice system has already accepted more than 60 amparos against the DNU presented by unions, provinces, organizations and individuals. Some rulings suspended part of the mega decree (its labor chapter) and the Supreme Court can definitively declare it unconstitutional.

First, Congress must analyze the “need and urgency” of the DNU, which can only be politically invalidated with the rejection of both chambers.