Javier Milei, the world’s first self-described anarcho-capitalist head of government, is reaching the halfway point of his four-year presidential term, and things are getting decidedly weird…
Milei went through almost a dozen rock songs at Buenos Aires’ Movistar Arena, including Demoliendo Hoteles, by Charly García; Rock del Gato, by Ratones Paranoicos; and Blues del Equipaje, by Mississipi, before repudiating a recent anti-Semitic attack on a woman and her son in Buenos Aires. He then performed a rendition of the Hava Nagila, a Jewish folk song that Argentina’s Zionist president said particularly “bothers the left”.
Milei has maintained his displays of unabashed support for Israel even as the Jewish State has intensified its genocidal campaign in Gaza and expanded its conflicts in the Middle East. The dumbstruck expressions on the faces of the largely Milei-friendly La Nación+ presenters as Milei works his way through Hava Nagila speak a thousand words:
Here is one of the best memes from the night:
All of this is yet further proof that in many parts of the West we are living through the age of stupidity. And “stupidity is a more dangerous enemy of the good than malice”, as warned the German pastor Dietrich Bonhoeffer, who died at the hands of the Nazis:
One may protest against evil; it can be exposed and, if need be, prevented by use of force. Evil always carries within itself the germ of its own subversion in that it leaves behind in human beings at least a sense of unease. Against stupidity we are defenceless. Neither protests nor the use of force accomplish anything here; reasons fall on deaf ears; facts that contradict one’s prejudgment simply need not be believed — in such moments the stupid person even becomes critical — and when facts are irrefutable they are just pushed aside as inconsequential, as incidental. In all this the stupid person, in contrast to the malicious one, is utterly self-satisfied and, being easily irritated, becomes dangerous by going on the attack.
Milei’s concert, intended as a celebration of the launch of his new book, “La construcción del milagro” (The Building of the Miracle), was at least partly state funded. It is also rumoured to have received financing from the Kovalivker family, which owns the company, Droguería Suizo Argentina, that was implicated in a recent kickbacks scandal involving Milei’s sister, Karina.
The official launch of “The Building of the Miracle” took place against a backdrop of worsening economic and financial crisis. On average, 28 companies have folded each day of Milei’s 22-month presidency. Now another recession looms as global investment banks and multilateral lenders, including the World Bank, scurry to cut their rose-tinted growth projections for this year.
The peso continues to dive while Argentina’s country risk premium, measured by JP Morgan, has climbed above 1,260. Brazil’s is at 187. The Central Bank of the Argentine Republic is still intervening daily in the currency markets to prop up the peso, burning through $1.5 billion in the previous six sessions. Short-term interest rates have also hit record highs of 80%, indicating a liquidity squeeze.
This is all despite US Treasury Secretary Scott Bessent’s pledge a couple of weeks ago to do whatever is needed to save the Argentine economy and currency. If he was hoping his words would have a Draghi-like effect on the markets, he must be bitterly disappointed.
Putting the “Narco” in Anarcho-capitalism (h/t Saifedean Ammous)
The concert also came just a couple of days after another major political scandal involving Milei’s party, La Libertad Avanza. The party’s top candidate for the all-important province of Buenos Aires in the upcoming mid-terms, José Luis Espert, had to pull out of the race over his ties (no need for the world “alleged”) to Federico “Fred” Machado, an Argentine businessman who is under arrest and facing extradition to the US on charges of cocaine trafficking.
After weeks of denial, Espert finally admitted at the weekend that he had received $200,000 from Fred Machado in 2019. Machado has also claimed that he helped finance Espert’s 2019 presidential campaign. At that time, Espert was like a mentor to Milei, who was just starting out on his political career, and allegations were already swirling about Espert’s ties to Machado, including from the libertarian journalist Nicolás Moras.
Milei spent the whole of last week defending Espert even as local media published more and more damning details of his links to Machado. After his former mentor finally admitted his guilt and announced his withdrawal from the race, Milei even shared a tweet proposing that Espert, a man who had just admitted taking money from an alleged drug trafficker, be made minister of security after the elections.
So, in sum, the Trump administration is preparing a potentially open-ended bailout (because that is what it will probably be) to a government that was already bailed out by the IMF, the World Bank and the InterAmerican Development Bank just six months ago. And that government, just like Ecuador’s US-aligned Noboa administration, has proven ties to drug traffickers.
Meanwhile, the US is vaporising boats in the Caribbean Sea that it claims are carrying drugs without presenting a single shred of evidence. It is also escalating its threats against Venezuela, even warning of strikes against land targets.
Growing Opposition to US Treasury-Led Bailout
The proposed US Treasury-led bailout is getting more and more complex as opposition builds in both the US and Argentina. From Infobae (machine translated):
Until last night in Washington, the financial bailout promised by Donald Trump to Javier Milei would take the following form:
A USD 20 billion swap-line made up, mostly, of Special Drawing Rights (SDRs) that the IMF delivered to the United States Treasury Secretariat.
Bond purchases during Octoberto stabilize the markets and lower the country’s risk premium.
But this financial engineering of the bailout would face certain technical constraints:
Who buys the SDRs of the United States in exchange for dollars?
Once the Ministry of the Treasury sends the Central Bank of the Argentine Republic those USD 20 billion for the purchase of the bonds, how does the monetary authority transfer them to the Ministry of Economy?
These technical constraints appear to have one possible solution. The United States’ SDRs could be bought by the Federal Reserve (FED), and Caputo could access the USD 20 billion deposited in the Central Bank through a Non-Transferable Bill.
However, opposition to the proposed bailout is growing in the legislative chambers of both countries. US soybean farmers — a key voting bloc for Trump — are also livid that the White House is considering bailing out one of their chief rivals for the all-essential Chinese export market as they themselves lose access to that market as a result of Beijing’s retaliatory measures against Trump’s tariffs. Argentina’s farmers have jumped at the chance to fill the void.
Now, the US government is looking to bail out the Argentine government — for its own benefit of course, which we covered in some detail in our post, Washington’s Debt Trap Diplomacy and Election Meddling in Argentina. US soybean farmers are up in arms, fearing that the bailout could indirectly benefit their Argentine rivals. That is debatable, however, given most of the spoils of Argentina’s increasingly frequent sovereign bailouts tend to go to financial speculators — or as the FT calls them, “wily currency traders”:
Individual traders snapped up $9.5bn from Argentina’s central bank from April to August in order to sell them for more pesos on a parallel exchange market, according to a report by Buenos Aires’ publicly owned Banco Provincia, cited by local brokerage One618.
The purchases, equivalent to roughly half of the agricultural export dollars from Argentina’s harvest season, made it harder for the monetary authority to buy dollars to rebuild its scarce hard currency reserves without weakening the peso, which Milei was keen to avoid.
“In Argentina, anyone who understands the tricks of the market can make profits that don’t exist in other parts of the world, at the expense of draining the central bank,” said Salvador Vitelli, head of research at local financial consultancy Romano Group.
The IMF’s Much-Ignored Role
What the FT doesn’t mention is the role the IMF keeps playing in facilitating the capital flight that inevitably follows. After the Milei government’s easing of capital controls in April, as part of the bailout agreement reached with the IMF, $5.3 billion of foreign exchange currency left the country in just six weeks. That was the equivalent of 44% of the IMF’s first $12 billion disbursement of funds.
That money gets added to Argentina’s already unpayable debt load even though it does nothing to benefit the country. The exact same thing happened in 2018.
This is why bailing out Argentina is such a high risk move: much, if not all, of the money will be used for financial speculation, and it will promptly leave the country. Given the cloud of controversy surrounding the proposed rescue package, the Trump administration and the Milei government are trying to come up with a joint strategy for preventing the opposition parties in their respective parliaments from blocking it. From Infobae:
The U.S. Congress would not have explicit powers to block the bailout of Argentina, but the Democratic caucus in the Senate is exploring legal precedents aimed at breaking the agreement negotiated by Caputo and Bessent.
In any case, by the Mexican Debt Disclosure Act approved in 1995, Trump and Bessent must report to Capitol Hill on the financial bailout for Argentina.
It’s also worth keeping in mind the respective backgrounds of the two chief negotiators of the bailout: US Treasury Secretary Scott Bessent, a former hedge fund manager who is more used to demolishing currencies than saving them; and Argentina’s Economy Minister Luis Caputo, a former JPM Chase banker who already drove Argentina into default once before, in 2018. If consummated, this will be the third bailout for the Argentine economy under his tutelage.
As Washington prepares to mobilise all this money to keep its most important client state in South America afloat, there is one key precondition: Milei’s party must achieve a strong enough showing in the upcoming mid-terms by expanding his tiny share of seats in congress and demonstrating enough popular support to win over potential allies in the centrist opposition, and be able to continue governing by veto and decree. From Bloomberg:
For now, the most popular base case scenario is that the government gets between 34% and 37% of the vote in the next election, Barclays economist Ivan Stambulsky said in a report to investors last week. Under these circumstances, it is expected that Milei will be able to continue governing by veto and decree.
That is looking increasingly unlikely. Milei’s approval ratings are dropping like a stone. According to a poll published on Sunday by Zuban Córdoba, 65% of the population now disapprove of the president’s leadership — no great surprise given the state of the economy and the proliferation of political scandals, many directly involving Milei and his inner circle.
Milei is unrepentant on the economy, blaming instead the “orcs” in opposition for all the problems. As I say, things are getting seriously surreal. From Politica Argentina:
“The economy was recovering until the orcs began to break everything,” the president said, pointing to opposition sectors. “There is still a long way to go, but we are going in the right direction. We are halfway there. Let’s make the effort worthwhile. They left us a minefield full of bombs. Fixing that is not easy. It involves sacrifice and pain.”
Milei accused the opposition of trying to “torpedo” the economic course since the beginning of the year: “Since February, March they have been torpedoing all the time and that generates a situation where the markets today are not working in the way they should normally do.”
The head of state asked for confidence in his political project and assured that “Argentines are going to vote for hope and they will not want to return to the past.” He also proposed a growth horizon: “If we continue on this path, in 10 years we will be like Spain, in 20 years like Germany, in 30 like the United States and in 40 we will be among the top three countries with the highest incomes.”
In other words, the government needs just one more bailout and then the “miracle” can continue. The delusional thinking is on such a scale that it is reminiscent of Robin Williams’ roasting of Wall Street’s liquidity-hooked bankers in the wake the subprime crisis.
International Financial Media Finally Breaks Ranks
After spending much of the past 22 months praising the economic accomplishments of the Milei government, the international financial press finally appear to be breaking ranks. Spain’s El Economista, until recently one of Milei’s biggest cheerleaders, has admitted that Argentina’s latest economic “miracle” is floundering.
The Financial Times has published a piece by Ciara Nugent warning that “Argentines are losing patience with the economy” after nearly two years of fiscal adjustment and growing social unrest over the effects of the austerity plan and the non-stop corruption scandals splattering the Milei government. It does not paint a pretty picture of the on-the-ground economic reality:
La Plata business owners said their clients were running low on cash. “People have been paying for bread with credit cards,” said Pablo Miró, who runs a bakery. “Inflation has come down, but I’m seeing more inequality.”
Belén Aguilar said she was closing her chocolate shop, which opened in 2022, because of falling consumer demand. “Sales fell about 50 per cent this year,” she said. “It’s no longer sustainable to keep the physical store.”
Economists say Milei’s singular focus on lowering inflation, which has been the scourge of Argentina’s economy for the past decade, has weighed on activity.
On Sunday, the Wall Street Journal published a scathing op-ed by Mary Anastasia O’Grady on Milei’s economic record:
President Javier Milei promised to liberate Argentina from the grip of a privileged establishment he calls the “caste”—and to dollarize. The 2023 election was a referendum on both. He won. But now he’s working to rescue the peso regime…
The latest peso rout came despite assurances from the U.S. Treasury that it is prepared to negotiate a $20 billion swap line for Argentina. The U.S. also said it might buy Argentine debt and use its Exchange Stabilization Fund to provide standby credit. But on those proposals Treasury Secretary Scott Bessent was less clear. That prompted Argentine Finance Minister Luis Caputo to fly to Washington Friday. The peso has stopped sinking—for now.
The trigger for the midweek selloff seems to have been the Argentine central bank’s Tuesday decision to restrict the purchase of dollars at the official—overvalued—peso rate. That was an admission that reserves in the bank’s vault were running low. The central bank had tightened capital controls the week before. It didn’t help. Neither did the temporary suspension of export taxes for grain dealers, which generated dollar inflows but didn’t fatten the bank’s war chest because there was also lots of peso selling.
The timing of all this couldn’t be worse for Mr. Milei. In three weeks his Liberty Advances coalition faces the Oct. 26 midterm congressional elections. A weak showing could leave him with a Peronist supermajority in the new legislature. The Peronist coalition’s voting record in Congress demonstrates that given the chance, it will happily demolish the fiscal discipline that Mr. Milei has worked hard to achieve.
It’s possible that at least some U.S. aid will arrive before the midterms. But the International Monetary Fund and U.S. government want Argentina to boost its reserves. Instead the ship is leaking.
Is Dollarisation Back on the Agenda?
In her article, titled “Time for Milei to Stop Passing the Buck”, O’Grady suggests that the only real solution to Argentina’s constantly recurring currency crises is for the Milei government to finally deliver on its electoral pledge to dollarise the economy:
Dollarization, regardless of the election outcome at the end of the month, remains Mr. Milei’s best option to rescue his government and his legacy. He need only let the market discover the real price of the peso and seize the moment to dollarize at that rate. That would be the end of foreign-exchange uncertainty and the need for capital controls. Interest rates would recede and investor confidence would boom. If the free float sparks a devaluation, the recovery period would be substantially shortened with the adoption of the dollar.
Dollarisation will, of course, come at a cost — not just for Argentina but also for the US treasury, which would have to put up far more money than the $20 billion credit swap it has offered thus far — and even that has sparked disquiet on Capitol Hill. As we noted in our Nov 21, 2023 article, “The Far-Reaching Implications of Javier ‘the Wig’ Milei’s Election Victory in Argentina“, on its own Argentina is not in a position to undertake dollarisation, for two simple reasons:
As Alejandro Werner, former director of the Western Hemisphere Department of the International Monetary Fund (IMF), told America Quarterly, “Argentina does not have the dollars to dollarize, and it does not have access to the financial market to obtain dollars.”
That is, for once, a blessing. After all, if Argentina were to fully replace the peso with the dollar, it would mean the end of any semblance of Argentinean sovereignty, as the South Korean economist Ha-Joon Chang warned during a recent visit to the country:
“If you want to adopt dollars as your official currency you should apply to become a colony of the United States of America because that’s what it makes you. This means your macroeconomic policies will be written in Washington DC.”
That would, of course, suit the US government just fine.
At least it will stop one country in the world from dedollarising. In the meantime, here’s the full clip of Ha-Joon Chang talking about the dangers of dollarisation.