This recording is from “Chainsaw economics: will it work for Argentina?” which was an hour long webinar by Andrew Thompson and Carlos María Regúnaga held on 17 January 2024.

Download slides

NOTE: Unfortunately for technical reasons our second speaker, Carlos María Regúnaga, was unable to join us. He was due to speak on the post-inauguration measures that President Javier Milei has introduced. These correspond to Slides 8-10 and Carlos has kindly agreed to share his notes which are available below:

Download Carlos María Regúnaga notes for slides 8-10 as a PDF.

Carlos María Regúnaga
Chairman, Menas de Argentina 

In order to evaluate Milei’s attitudes and policies, it is imperative to understand the deplorable state Argentina is in.

Upon his inauguration, he found an economy plagued with regulations, restrictions and prohibitions such as widespread price, import, export and foreign exchange controls that seriously hampered business activities.

For that reason, his first measures were aimed at restoring a normal, free, capitalist society by eliminating all such restrictions whenever they could be abrogated through executive orders.

Moving in that direction, Milei produced a major nominal devaluation of the peso. I say nominal because the official rate of exchange was available only to a few privileged importers. The central bank had negative net reserves. And many importers had developed debts of billions of dollars with their foreign suppliers.

The foreign exchange market is being slowly normalised but cannot be liberated immediately until the central bank rebuilds its reserves in dollars and other hard currencies. Exports forecasts look much brighter this year so I am optimistic about liberation of this market sometime in 2024.

The price of many public services will require a more formal procedure because it involves public hearings. The aim in this case is reducing the impact of subsidies in the national budget.

As we start considering the budget, it is important to bear in mind that the consumer price index showed last year an annual increase of 211.4%. And this number is misleading because inflation was rising throughout the year. In December the monthly increase reached 25.5%. The annual projection of this percentage would lead to a much higher total number. Faced with such reality, shock therapy was inevitable.

Inflation is fuelled by a treasury deficit equal to 5% of GDP, multiplied by the additional deficit caused by accrued interests against the central bank’s debt to commercial banks, represented by securities issued by the previous administration. Milei is determined to achieve a balanced treasury budget this year. To be more specific, a 2% primary surplus, thereby leaving 2% to cover interests. A great many of the measures he has taken as well as the proposals submitted to Congress point in that direction.

At the same time, the new board of central bank directors is seeking to reduce central bank’s liabilities.

Because the central bank does not collect taxes and does not produce anything, interests accrued by its debt lead to the issue of even more securities, that is, even more debt that in turn generates more interests.

Issuing enough pesos to cancel all debts would cause hyperinflation. The current central bank’s board of directors has reduced interest rate paid to banks, thus gradually reducing the impact of this debt.

DNU: The elimination of other restrictions, in particular privileges granted throughout many years to special interests and a great many other reforms require acts of Congress.

The urgency to put into effect these reforms led Milei to resort to constitutional provisions that allow the president to issue executive orders with the effect of congressional acts in case of urgent need. (the Spanish acronym is DNU) A DNU remains in effect unless both houses of Congress vote to reject it.

The very long and complex DNU sanctioned by Milei can be reviewed by a joint committee formed by 8 Senators and 8 Deputies that should issue one or more reports before 19 January. Should this not occur, each house can debate and vote on it at any time.

Ley ómnibus:

In another major initiative the president has submitted to Congress a very long and complex bill dubbed the Omnibus Law.’ It includes all reforms that according to the Constitution cannot be treated in a DNU: criminal, tax and social security laws as well as legislation applicable to the electoral system and political parties.

Opposition to Milei’s policies is taking place in three main battlefields: congress, the judiciary and the streets.

Congress: the Omnibus Bill is being debated in a joint session of several committees of the Chamber of Deputies. Meetings take place during very long hours practically every day.

Negative votes by the Kirchnerista and Marxist left blocks are inevitable.

The sanction of the bill depends on obtaining positive votes of almost all other legislators. Milei’s party has only 37 deputies in a 257-member house, and seven senators of a total of 72. But the core of the economic reforms under consideration were part of a programme elaborated within the main non-Kirchnerista coalition that was eliminated in the first electoral round. The presidential and vice-presidential candidates of that coalition are now ministers in Milei’s cabinet. Therefore, the support of legislators elected under their banner could be secured if Milei agrees to eliminate the reform of the political system, the delegation of powers that he pretends and minor corrections on other issues, that are not part of the core economic programme.

The Judiciary: Several courts have granted stays that suspend the application of the DNU in many individual cases. and the province of La Rioja has resorted directly to the Supreme Court.

This highest court, however, does not want to rush to a decision. Since it is in recess in January, nothing will happen until February. and several procedural steps have to be taken before any decision can be handed down. Additionally, it should be noted that the Supreme Court does not have a time limit to decide. It is likely to wait until it receives cases from the lower courts.

The Streets: many and frequent demonstrations are taking place to show opposition to the DNU and the top labour association — the Confederación General del Trabajo — has called for a general strike and a march on January 24. Although purporting to defend workers’ rights, what really hurts trade union leaders is the loss of union and health insurance dues that employers are compelled to collect from all employees, regardless of them agreeing or not and transferred to the trade unions.

Some of the areas the talk addressed, were:

• Election results and the current political balance
• Milei’s diagnosis and economic plans for Argentina
• Governability – the state of play in Congress
• The new cabinet team
• Government approaches to privatisation
• The planned sale of the state-owned YPF oil company
• Can Argentina dollarise without dollars?
• Is this the end of the Mercosur trade bloc?
• Will there be a realignment on the centre left?
• Can soya, lithium and shale gas save the day for Milei?
• Scenario planning for 2024

Speakers

Andrew Thompson was brought up in Argentina where he was based as a foreign correspondent for The Times and other publications during the Falklands/Malvinas war. He covered: the collapse of military rule and the restoration of democracy in the early 1980s; many subsequent cycles of economic booms and busts including hyperinflation and the default and devaluation crisis of 2001/2002. Andrew — who worked as head of the BBC’s Latin American Service — is now an independent analyst covering political risk across major Latin American countries. He has previously worked for Latin News, the Economist Intelligence Unit (EIU), and Oxford Business Group. He is an associate fellow at Canning House in London.

Carlos María Regúnaga is the head of Menas de Argentina. He holds a law degree from Buenos Aires University with post-graduate studies at Buenos Aires, Princeton, and New York universities. Corresponding Academician at the National Academy of Sciences of Buenos Aires. Academician at the Academia del Plata. President of the Fundación Circulo Cultural. Consultant of the Argentine Council for International Relations. Knight Commander with Star of the Equestrian Order of the Holy Sepulchre of Jerusalem. Former Chief of Cabinet of the Argentine Department of Commerce. Former professor of Constitutional and Integration Law at several universities in Buenos Aires and Porto Alegre, Brazil.