Milei’s victory plunges Argentina into uncharted waters

Far-right libertarian Javier Milei is set to become president of Argentina after defeating Economy Minister Sergio Massa in Sunday’s runoff election. With over 90% of the ballots counted, Milei leads the vote count 56% to 44%, and Massa has conceded defeat.

Milei’s campaign promises: A self-described anarcho-capitalist, Milei has pledged to cut public spending by 15%, abolish Argentina’s central bank, ditch the peso, and make the US dollar the country’s legal currency.

Despite Milei’s extreme campaign pledges, it seems that voters just couldn’t stomach elevating an economy minister who had delivered inflation north of 140% to the presidency. Two in five Argentines are living in poverty on Massa’s watch.

Milei's party, however, only controls about a small fractions of seats in each house of Congress, which will make passing legislation a major challenge.

What's more, dollarizing the economy is no panacea. True, countries like Zimbabwe and Ecuador have used the tactic to remove the government’s ability to print money (and thereby drive inflation) — but Argentina ain’t Zimbabwe. Unilaterally handing the US Federal Reserve control of monetary policy in a $622 billion economy is absolutely unprecedented.

The dollarization of an economy this large and signaled this far in advance may actually drive up inflation. To fully dollarize, Milei would need to buy enough dollars to convert all the pesos in circulation and convert all contracts and assets into dollars. Buenos Aires is already having a hard time buying dollars because the peso is so weak, and the lack of foreign reserves to back its nominal value means a significant devaluation of the currency is expected before Milei takes office on Dec. 10.

Because the peso will soon be even weaker, Milei will probably need to print more pesos just to begin the dollarization process. But in doing so, he’s likely to trigger another round of hyperinflation, which could quickly eat away at his political popularity.