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Soriek  5mo ago (text post)   1490 thread views

Transnational Thursdays XXX

This is the thirtieth weekly thread for people to discuss international news, foreign policy or IR history. I usually start off with coverage of some current events from a mix of countries I follow personally and countries I think the forum lives in or might be interested in. Feel free as well to drop in with coverage of countries you’re interested in, talk about ongoing dynamics like the wars in Israel or Ukraine, or even just whatever you’re reading.

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Down in Argentina, I've been shocked at how quickly and decisively Milei has been moving. I don't really have anything insightful to say about it, but I've gotten so used to gradualism that it's a real eye opener when a guy comes in and eliminates half the ministries on his first day, enacts government spending cuts equivalent to 5% of GDP, fires huge numbers of bureaucrats, etc. We'll see how it all plays out, but chainsaw man is not messing around.

Same here, I significantly underestimated how much direct power the President has for reforms without asking permission from the leg branch. At the same time, the reforms don't seem that drastically different compared to Macri's last term, which may be intentional to gain JxC support for legislative initiatives.

For third party onlookers, here's a small recap of specifics:

He announced a devaluation of the peso by over 50% (see chart), and promised to slash electricity and transport subsidies, halve the number of government ministries from 18 to nine, suspend public works and reduce federal transfers to Argentina’s 23 provinces. The government reckons these cuts amount to almost 3% of gdp.

Alongside this, however, the administration will increase taxes on imported goods from 7.5% to 17.5%, and extend a tax of 15% on all exports (an existing tax of 30% on soyabean exports will be maintained). Child benefits will double, as will the value of a government food card for the country’s poorest. The idea is to cut spending while temporarily increasing taxes to raise revenue, in order to lower the annual deficit from over 5% of gdp today to zero by the end of 2024. “We have come to solve the addiction to fiscal deficits,” said Mr Caputo, noting that Argentina has been in the red for 113 of the past 123 years. The imf, which is owed $43bn by Argentina, applauded the “bold initial actions” and promised to work “expeditiously” with the new government in the coming months. In a statement the fund admitted that the deal it signed in March 2022 with Argentina’s government to restructure its loan had suffered “serious policy setbacks”.

Many political observers underestimate how great the challenge is for Milei. $44bn owed to the IMF alone, $400bn overall, like $15bn maturing next year alone. Just to stay ahead of default will require being the best performing economy in the developed (air quotes optional) world under best-case global macroeconomic conditions. What makes Argentina so tough is that the pain of fiscal discipline would be (or will be) so substantial and so long-lasting that voters would have to reaffirm their commitment to it multiple times despite significant material declines in quality of life.

And it’s hard to understate that. I think a lot of Milei’s voters expect the liberalization efforts to yield short term economic improvements when in reality the opposite is likely.

There've already been large increases in meat prices and a devaluation of the peso by 50%, so you'd expect his popularity to crash fast if that's the case.

I am not sure if you know that, but the real peso value has barely budged. Nobody sane used the official currency exchange rate when having any chance to avoid it; this is probably the country with the highest black market currency exchange share, couriers developing piles of cash for USDT everywhere. Milei has simply forced compliance with reality.

Price hikes are real, though.

There’s a difference between a few months of pain and years of it, too. Their patience will need to be immense.

People are generally able to discern between the hardships of climbing a mountain and running in circle in a quagmire. Usually the direction the economy is moving to is what determines voters sentiment. Crash now and then steady improvement would yield good electoral outcomes.

Also while global interests are high right now - there is a lot of capital looking for investment - especially after the west is hell bent on sanctioning everyone. A business friendly Argentina is probably not a bad place to do investments in.

Down in Argentina, I've been shocked at how quickly and decisively Milei has been moving.

Yeah, it surprised me, too. Because there were three main positions/narratives on Milei in the right-wing circles I frequent, and this pretty much seriously undermines one of them — at least with respect to Argentina — and somewhat weakens another.

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