There is great interest in the foreign policy that Argentina’s new President, Javier Milei, will implement when he assumes office at the Casa Rosada on December 10th. His initial actions, since winning against Peronist Sergio Massa in the November 19th elections, provide insight into what might be his approach.
Former US President Donald Trump was one of the first to congratulate Javier Milei. Trump expressed his enthusiasm on Truth Social, stating, “I am very proud of you. You will change your country and make Argentina great again.” The Kremlin spokesman, Dmitri Peskov, also congratulated Milei, which can be seen as an endorsement. Peskov expressed Moscow’s desire to further develop relations with Argentina. Additionally, even though the new right-wing President had promised to review trade relations with Beijing, calling them “vexatious”, congratulations also came from China’s Xi Jinping.
Despite receiving congratulations laced in self-interest, Milei’s early actions were guided by Realpolitik. Lacking a majority in Parliament, Milei needs more presentable alliances on the international front, which is why his first trip abroad, in late November, was to the United States.
Reuters confirmed that President Biden will not be present at the inauguration of Argentina’s new President. Meanwhile, the International Monetary Fund (IMF) has expressed a strong desire to support Argentina, and the country could receive financing through the IMF’s Resilience and Sustainability Trust, as announced by Kristalina Georgieva, Director-General of the IMF, on Reuters.
The future government’s designated Minister of Economy, Luis “Toto” Caputo, recently held crucial meetings in Washington to discuss the Argentine economy. During his visit, he met with Michael Kaplan, Deputy Assistant Secretary of the Treasury for the Western Hemisphere, and Jay Shambaugh, the Under Secretary for International Affairs. It is worth noting that the Treasury’s viewpoint holds great importance, as the United States is the primary shareholder of the IMF. In fact, the International Monetary Fund’s executive board only votes on Argentina with Washington’s endorsement.
Caputo proposed to both the IMF and the Treasury an even more drastic adjustment than the organization had requested in the first instance, in addition to structural reforms that the IMF has long demanded. Buenos Aires requires immediate funds as Argentinian Central Bank reserves are depleted. It is crucial for Milei to swiftly renegotiate with the IMF as there is a pending disbursement of US $6.5 billion. Caputo presented Milei’s program to the Treasury, primarily based on a 5% GDP fiscal adjustment in 2024, state reform, privatizations, and deregulations.
The newly elected President also met with Biden’s National Security Advisor, Jake Sullivan, along with former US President Bill Clinton and Biden’s representative for Latin America, Christopher Dodd. John Kirby, the White House Spokesperson, mentioned that they are interested in understanding Milei’s ideas and policies and keeping communication channels open.
Although Milei denies that climate change is man made, the meetings with the Biden administration, which diverge on this issue as well as on policies towards Cuba, Venezuela and Nicaragua, were considered “positive” by both sides.
In addition to the United States, the Argentine President-elect expressed his desire to establish “privileged and priority” relations with Israel. Argentina’s new administration positions itself as one of the most pro-Israeli governments in the country’s history. This stance is unique at a time when other Latin American nations, such as Colombia, Cuba, Nicaragua, and Bolivia, have expressed solidarity not just with the Palestinian people but even with the Hamas terrorist group. It is noteworthy that before his inauguration on December 10th, Milei has scheduled a visit to Israel.
On the Latin American front, Brazilian President Lula da Silva is concerned about the future of Mercosur after the defeat of Sergio Massa and his Peronist party. Lula da Silva relied heavily on Massa as a key partner in their shared efforts within Mercosur.
Currently, as Brazil presides over the common market for Latin America, which includes Argentina, Paraguay, and Uruguay, a sensitive agreement with the European Union is being negotiated. However, this agreement is now in danger of being abandoned. During his election campaign, Milei mentioned several times the possibility of Argentina withdrawing from the negotiations and even leaving Mercosur in case of his victory.
During a recent meeting with Brazilian Foreign Minister Mauro Vieira in Brasilia, Diana Mondino, Argentina’s future Minister of Foreign Affairs, announced that Argentina would not join the BRICS group, which originally comprises Brazil, Russia, India, China and South Africa and is being expanded. This statement ends any speculation about Argentina’s possible inclusion in the group.
The big question looming over Milei’s presidency is his governing style. According to Benjamin Gedan, the Director of the Argentina Project at the Wilson Center in Washington, Milei is likely to moderate his program to broaden his support among the public and other political parties. If he does not, however, the country may face political deadlock, with trade unions resorting to social unrest and riots. This scenario would be costly for Argentina, but Milei’s economic proposals are not entirely unhinged.
Recently, Peter Fischer, the head of the economic editorial staff of the Neue Zürcher Zeitung, wrote an article on Milei’s election titled “Abolishing the Central Bank is a good idea”. In his article, Fischer suggests that dollarization may be the only practical solution for Argentina to tackle inflation. He also emphasizes that we should not judge Argentina’s new President by the same standards that apply in Switzerland.
It is easy to see why Milei will have a tough job when he becomes the leader of Casa Rosada on December 10th. He will have to govern a country already in a state of decay. According to the most recent analyses and projections inflation has reached 143% and is set to rise to 200% by the end of the year.
To address price distortions, combat inflation and satisfy the preferences of Argentines, who already save in dollars and conduct real estate transactions in US currency, Milei suggests two apparently unorthodox measures: the adoption of the US dollar as the official currency, and the elimination of the national Central Bank.
According to The Economist, there is much skepticism regarding Argentina’s plan to dollarize its economy across the international community. However, Steve Hanke, Professor of applied economics at Johns Hopkins University in Baltimore, is confident in Milei’s plan, “Argentina must dollarize to solve its problems. Historically, the countries that have done so have achieved lower inflation rates, smaller fiscal deficits, lower levels of debt than gross domestic product, fewer banking crises, and higher real growth rates than comparable countries that have instead left a free hand to central banks.” We will soon learn who is making the right assessment.