Special issue: Argentina at one year of Milei’s government

Guest editor: Marisa Duarte

President of the Argentine Institute for Economic Development (IADE)
Director of Realidad Económica

The capitalist system is going through a stage in which various processes are combined: the transition from globalism to multilateralism with a progressive growth in the economic importance of the Asia-Pacific bloc; the rearrangement of the regions in relation to the central countries and the accentuation of the peripheral and dependent character of many countries. Every dependent economy is affected by the rise of financialization, indebtedness, and extractivism that, together, constitute a framework of neocolonial relations.

Current extractivism, historically characterized by the exploitation of hydrocarbons, mining and extensive agricultural production, has been increased by the conversion of natural goods into  exportable commodities (rare earths, lithium, salts, water) and has put territories (and the planet) at the limits of their sustainability.

In addition, the use of technologies applied to finance that maximize the mobility of capital in all its forms (physical or virtual, licit or illicit), makes it possible to hide assets and facilitate the offshore establishment of holdings, and hide the final beneficiaries of the assets, leading to an extreme weakening of nation states and their collection capacity.

In different countries of the developed, emerging or underdeveloped world, the emergence of disruptive leaderships of an authoritarian, ultra-rightist or fascist nature is verified as a result of previous democratic processes characterized by economic and political impossibilities and frustrations.

Argentina is governed by a power bloc that presents numerous novelties and ruptures of public policies and institutions; but it also expresses the deepening of a political process driven by the dominant financial actors – local and foreign – electorally validated by the popular sectors, in the face of the impotence of the political coalitions that historically resisted the conservative sectors.

As demonstrated by the texts that make up this issue of Ola Financiera, the government headed by Javier Milei is carrying out a macroeconomic and social experiment based on the sacrifice of Argentine citizens on the altar of freedom. In the words of Mariano Féliz, “Milei’s government embodies a project that radicalizes the dismantling of the State, accelerates the neo-extractivist strategy (also integral to the neo-developmentalist program) and through a new acceleration of foreign indebtedness (under the tutelage of the IMF) builds an additional restriction to the possibilities of success  for Argentine capitalism”.

Ana Laura Fernández and Mariana González characterize the labor market prior to the anarcho-capitalist experience with the aim of highlighting the low incidence of wages in the external restriction compared to the significance of financial flows. Meanwhile, Cristian Vassin analyzes the behavior of labor during the first year of Javier Milei’s government and concludes that “If industrial activity and competitiveness do not improve, it is difficult to see a recovery in employment in the short and medium term, particularly given the weakening of the condition of the salaried worker through the losses in the legal field that affected workers through the Law of Bases that paradoxically was promoted to increase employment”.

Javier Milei’s rise to power took place in the midst of a previous inflationary escalation that the new government contained; however, the explanation about the causalities of the inflationary process must be questioned. According to Valentín Álvarez et al.: “Successes in disinflation are not explained by fiscal adjustment and the reduction in the money supply as the official narrative suggests [...]. On the other hand, the main stabilizing factors are found in the elements that this vision identifies as complementary: during the first half of the year, the fixation of the official dollar and the financial ones made possible by the recession and exchange regulations; and, during the second half of the year, by interest rate policy and money laundering”, with a structural and sustainable solution to the inflationary problem still pending.

The government combines a very serious debt (internal and external) with a consequent adjustment plan that aggravates social inequality, destroys the labor market and wages along with the rights associated with them. Successive debt restructurings have given rise to a process of financialization and speculation with capital flight that has repercussions in the balance of payments. María Emilia Val and Andrea Molinari show that “Between 2003 and 2015, a confrontational strategy with creditors was promoted, which sought to reduce the weight of the debt and increase the country's autonomy, resulting in a tough dispute with vulture funds. This episode showed that it is possible to generate novel approaches from countries of the Global South (if conditions allow it) and consensus among developing countries, but its resolution (in 2016) showed that precedents can also be set that improve the pressure capacity of holdouts”. Meanwhile, Gustavo García and Ignacio Juncos explain the mechanisms through which “the last cycle of indebtedness was aligned with the dynamics of financialization at the international level and had adverse effects on economic development”.

Likewise, the weight of debt in dollars on successive budgets leads to an increase in export pressure at the cost of deindustrialization and the loss of added value generated in the country. As Cantamutto et al. state, “It is a government that takes the "export mandate" to its maximum expression, given that the only way to sustain the main pillar of the anti-inflationary policy – exchange rate stability – and to be able to pay the foreign debt is through the sustained increase in exports based on static comparative advantages, that is, on natural resources. This represents a problem in terms of the productive structure and the social structure that this mandate entails, as well as the environmental liabilities it generates”.

Meanwhile, Gabriel Sánchez indicates that, although “monetary policy has managed to considerably reduce the Argentine inflationary index in the last twelve months, the positive results it has achieved have been poor compared to the level of leverage that it has required and continues to require from the main banks and global organizations, and that will undoubtedly end up taking its toll,  both directly and indirectly, on the pockets of all Argentines”.

Another point to mention is the deepening of the regressivity of the tax structure and the weakening of the collection capacities of the treasury. The Incentive Regime for Large Investments (RIGI) is an elimination of taxes for large companies, many of them foreign, which means that the burden of taxation is placed on consumption. As Verónica Grondona points out, “Some of the sectors with a high level of foreignization favored by the RIGI already enjoy tax benefits, despite the fact that, due to their strategic nature as a natural resource –in the case of lithium, oil, gas –are redundant, since the investor’s interest lies in the resource itself. In cases such as these, the private sector may be more interested in obtaining long-term certainty regarding its right to exploit the sector, as well as a guaranteed capital outflow, rather than in a tax reduction. The guarantee of capital outflows would therefore seem to be one of the benefits granted by the RIGI, which is most aligned with its objectives. Considering the rest of the tax benefits granted, this would seem to be the clearest expected result of the RIGI. Moreover, it is expected that existing investments will be reconverted to participate with projects in the RIGI without additional investments, only to be able to enjoy the benefit of capital outflow and the guarantee of institutional stability for its continuity”.

These policies close the loop that reinforces the recession and falling incomes. As Andrés Musacchio puts it, “The so-called financial stability depends on a constant deepening of adjustment policies, while social unrest and political tensions grow. The government’s growing authoritarianism to contain popular resistance lays bare the central paradox of this project: its internal coherence is built on the systematic destruction of any alternative, a balance as fragile as it is socially unsustainable”. Or, as Alejandro Vanoli and Lucas Gobbo indicate: “... Without a productive model that generates genuine foreign currency, any scheme based on foreign debt and trade liberalization is unsustainable. The Argentine experience has repeatedly demonstrated this: without a strategy that articulates the State, development and inclusion, the cycles of exchange rate backwardness and external deficit invariably end in crisis”.

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