Argentina: Milei Won But Can He Govern?

Javier Milei, a far-right outsider candidate, takes over Argentina’s presidency on December 10 after winning a runoff against Economy Minister Sergio Massa, 55.7% to 44.3%. Milei ran on a radical program that proposes end a punishing bout of near hyperinflation by dollarizing the economy.

The surprise outcome was the fruit of a coalition against Massa and the Justicialist Party, or Peronists, on whose watch Argentina has endured one of its worst crises of recent decades. Patricia Bullrich, the defeated center-right candidate who came third in the first round, endorsed Milei in the runoff.

Massa conceded to his opponent even before the official results were announced. Brazil’s left-wing President Luiz Inacio Lula da Silva, often criticized by Milei during the electoral campaign, declared following the vote that democracy is the voice of the people and “must always be respected.” He commended the “orderly and peaceful” change of power.

Without a majority in Congress, Milei now faces the big test of carrying out his program.

“We suspect that some of his more radical proposals, namely dollarization, may not materialize given limited support both in Congress and among the public,” William Jackson, chief emerging markets economics at Capital Economics, wrote in a morning note after the result was made public. Milei’s “plans for drastic spending cuts and reduced government interventions are necessary ingredients for Argentina to exit its economic malaise. But given the extremely fragile state of public finance and overvalued currency, another large fall in the peso and sovereign debt restructuring are likely.”

That said, “I think that people who voted for [Milei] were really demanding a dollarization,” says Alejandro Grisanti, founder and CEO of Ecoanalitica. “If he fails, it would be yet another big disappointment for Argentina. He acknowledges, however, that “given that there is a shortage of US dollars in the country and there is a net outflow of capital, dollarization is a difficult task.” If its wants the dollarization plan to succeed, Grisanti argues, the new government will have to quickly negotiate with its multilateral lenders for extra funding. A new loan from the International Monetary Fund “is not going to be easy, but I would not rule it out. On the contrary to what most people think, the IMF has been always pretty complacent with Argentina.”