The former tantric sex trainer has suddenly become the leader in the race to become Argentina's next president. Photo: LUIS ROBAIO/AFP
Milton Friedman was not known for being soft and cuddly. The father of monetarist economics inspired the central bank's crackdown on inflation, which triggered recessions and became the intellectual deadweight of Margaret Thatcher, the Iron Lady.
For Javier Milea, however, Milton Friedman is a good name for a dog. .
An unexpected leader in the race for the presidency of Argentina has named one of his five English Mastiffs after the Nobel Prize winner. Other pets are named after Robert Lucas, another Nobel Prize winner in economics, and Murray Rothbard, a libertarian economist.
Miley thanked his dogs, along with his supporters, over the weekend following a surprise first-round victory.
The former rock star and former tantric sex coach has been nicknamed the Hispanic Donald. Trump and Miley are said to be admirers of the former president.
His success alarmed not only the political establishment, but also investors and mainstream economic circles.
The self-described «anarcho-capitalist», Miley proposed abolish the central bank and said he would «burn down» the institution.
He has proposed switching Argentina from the falling peso to the US dollar and wants to balance the ledgers using a «chainsaw» for government spending.
< p>He also wants to cut taxes, including on workers and agricultural exports, and shrink the public sector by encouraging people to retire rather than lay off staff.
Miley is referred to as Hispanic Donald Trump and is said to be a fan of the former US president. Photo: ROBYN BECK/AFP
The radical package has sent investors fleeing Argentina, and the peso has plummeted this week.
>
However, his proposals resonated with voters. Inflation in the country exceeds 110 percent, which is one of the highest rates in the world, and rising prices have pushed about 40 percent of the population below the poverty line.
“Remember, another Argentina is impossible with the same people as always, with the same people who always failed,” Miley told supporters after votes came in over the weekend.
“Today we got up. enough to say about the model of decadence. Today, we have taken the first step towards rebuilding Argentina.»
Despite its good looks and colorful past, Miley's proposals aim to address some of Argentina's most pressing problems.
Over the past 30 years, the country has steadily was building up debt, except for six years of surplus before the financial crisis.
“The concept of reducing the budget deficit is definitely a good one,” says Sergi. Lanau of Oxford Economics.
As far as fighting the inflation hitting the country, Milea's plan to dollarize the economy also has its merits.
«If you look at other emerging markets that are curbing inflation, the dollar peg is often part of that process,» says William Jackson of Capital Economics.
Adopting a Fed-issued currency removes the temptation for politicians to print money to pay for their policies, which fuels inflation.
Jackson says, “It eliminates the monetization problem deficit and political influence on the central bank.”
Perhaps this is where the central bank abandonment scheme comes into play. The adoption of the dollar would deprive the central bank of control over monetary policy and possibly make it responsible for issues such as banking regulation. Investors turned down Milea's electoral success.
Pound Sterling against the US Dollar, September 23
The peso fell sharply after the announcement of the results of the first round of the presidential primaries. , in which Miley received more than 30% of the vote.
On Monday, as a result of the devaluation, the peso fell by almost 18%. One US dollar can now buy 350 pesos at the official exchange rate, compared to 135 pesos a year ago and 60 shortly before the pandemic.
The Argentine Central Bank was forced to take emergency measures to protect the economy by raising its base interest rate from 97% to 118%.
Investors are worried that Milea's shock therapy could harm Argentina's already weak economy and lead to its collapse. risk of default on international debt.
There are also questions about how credible policies are, when viewed in detail.
Lanau says: “When his advisers say they will to zero in a few months, without getting rid of civil servants and without cutting social spending, it is impossible.”
The practical aspects of accepting the dollar is also a challenge.
“Essentially, the government or central bank needs to have dollar assets at least equivalent to the monetary base so that they can cover all the cash in circulation and all bank reserves. at the central bank,” says Jackson.
The state has reduced its foreign exchange holdings in hopes of propping up the peso. Without a large amount of physical dollars, it is difficult to find a replacement for the currency. Few are willing to lend to the country.
Then follows the calculation of the exchange rate at which you can make the transition. Too low and households feel resentful replacing their hard-earned pesos with a very small wad of dollars. But too high, and the economy could be crippled by an uncompetitive rate, making exports unaffordable and undermining growth.
Milea's team pointed out that it could allow people to choose which currency to use in a more freely floating manner, though the details are unclear.
Lanau says new announcements about the plan could spur Argentines to buy dollars as soon as possible. as much as possible, effectively dropping the peso and pushing it even further down.
“Depending on what he says in the campaign, people can get even angrier,” he says.
A further fall in the peso would mean higher inflation, exacerbating an already bleak economic outlook. Argentina's economy has contracted for five of the last 10 years and is expected to contract again this year before stagnation at best in 2024.
It is by far the largest borrower from the International Monetary Fund, with a $44 billion loan scheme restructured last year. Buenos Aires only agreed to a new deal late last month to keep the country on track with its debt to the Fund.
Jackson says: “It's fair to say that Argentina is in a pretty bad crisis. . The currency is under enormous pressure. In fact, he keeps his head above water only because he receives funding from the IMF.
Milea's team has indicated they may allow individuals to choose which currency to use. approached him to discuss the situation following his success in the polls over the weekend. The foundation itself says that they regularly meet with politicians.
A spokesman said: «In the case of presidential candidates, these commitments also allow staff to better understand key aspects of future potential economic policies.»
Argentina has defaulted on its debt nine times in its history, including setbacks. pay off creditors in 2020 and 2014. The recent collapse of the peso puts the country at risk of yet another default.
According to Capital Economics, the severe depreciation of currencies against the dollar has led to debt defaults about 50% of the time over the past three decades, and a recession of 80 % of cases. «Argentina is unlikely to be an exception,» say local analysts.
Dependence on the IMF could yet become a force, suggests King's College London's Juan Griguera.
“Argentina is the IMF's largest debtor, accounting for about 34% of all loans to the IMF,” he says. “It was kind of leverage in debt restructuring negotiations in 2019 and during Covid.”
Grigera, who teaches international development and received his PhD from Buenos Aires, notes that all three leading presidential candidates are also committed to continuing debt payments.
However, Lanau warns that rising debt payments in 2025 means that by the end of this year “it will be impossible not to default.”
“ The only the way to refinance without default is to issue new bonds, but [Argentina] is very far from borrowing money from anyone other than the IMF,” he says.
“There is almost a 100% chance that by the end of 2025 they will run out of dollars, even if one of the leaders tries to fix everything.
Свежие комментарии