CELAG warns that the plan of Javier Milei’s government puts the future of Argentina at risk

CELAG warns that the plan of Javier Milei’s government puts the future of Argentina at risk

“Javier Milei received an economy with double the reserves of what he had Nestor Kirchnery the same projections of bonanza coming from foreign trade”, states the latest report of the Latin American Strategic Geopolitics Centera (CELAG), which maintains that despite encouraging trade projections for 2024, the president chose a policy of “economic anemia”, which implies an indiscriminate adjustment on the entire community, “instead of opting for a productivist approach“.

Titled “How much does Milei need the economy to fall?”, the document states that unlike the productivist path that Néstor Kirchner chose, Milei opted for the strategy of economic anemia, which “is more than the classic adjustment, because it relies more in the community as a whole than in the fiscal adjustment and which has structural effects that are difficult to reverse“.

In this sense, “although Milei focuses his speech on the need to adjust the “anti-caste” sector, this only represents a third of the effort, while two-thirds of the burden falls on the “community,” the document shoots.

CELAG ran a simulation of the demand for dollars andn depending on the real exchange rate and different economic growth scenariosand concluded that Milei’s model “not compatible with growth“.

Strictly speaking, it indicates that if the economy were to grow at the rate foreseen in the 2025 budget, there would be a currency collapse between 2025 and 2026, depending on the scenario. Likewise, it indicates that if the economy remained stagnant in 2025 and 2026, the risk improves, “but not enough so that there is no collapse due to insufficient foreign currency in 2025 or 2026“.

“Interestingly, for there to be a low risk of collapse, the economy would have to experience a 9% decline in 2025, followed by another 1% decline in 2026. In a more optimistic scenario, there could be modest growth of 2.6% in 2025but with a drop of 6.9% in 2026″, indicates the report.

In this context, the option of economic anemia seems to be the only viable strategy for Milei, although at the cost of increasing the risk of social and economic collapse. “This begs the question: “What type of collapse will Milei choose?” asks the think tank.

The option of economic anemia

Milei’s choice due to economic anemia becomes evident when comparing the circumstances under which he assumed his mandate. At the beginning of his administration, the projected trade balance for 2024 offered a growth opportunity that could have been channeled through less recessive policies.

“However, Milei decided to follow a recipe of severe and dehumanized adjustment. In his first significant measure, he caused a devaluation of the peso of 118.5%, one of the most drastic in Argentine history, contrasting with Kirchner’s policy that , to overcome similar challenges, opted for a more productivist approach and debt renegotiations,” the document states.

And he adds that Milei’s approach is based on two simultaneous economic shocks: “one indiscriminate to the economy that seeks to reduce imports and generate foreign currency, and another focused on the public sector that seeks a fiscal surplus.“However, this decision reflects a clear preference for economic anemia,”perceiving it as the most efficient way to generate foreign currency in the short term”.

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The document concludes that the data show that the fiscal adjustment, which is concentrated in the public sector, would generate a surplus of between 6.5 and 7 billion dollars in 2024while the indiscriminate adjustment that affects the community’s accounts could reach an external surplus of approximately 20 billion dollars. “This implies that two thirds of the burden of economic anemia falls on the “community”, leaving one third on the “anti-caste” part of the fiscal adjustment“.

Growth prospects in the Milei economy

The simulations carried out by CELAG to evaluate the growth rate compatible with the stability of external accounts show worrying results. “Assuming that the abundance of international reserves is key to macroeconomic stability, it was observed that, even with expected growth rates of 5% and 5.5% for 2025 and 2026, respectively, international reserves could fall to dangerously low levels , below the $26 billion projected by the end of 2024“.

In a stagnation scenario, the analysis suggests that reserves could improve slightly, but not enough to avoid a collapse. In contrast, moderate growth of 2.4% in 2025 could keep reserves above 26 billion in an optimistic scenario, although this would imply significant currency risks.

Dollar reserves and country risk

In a stagnation scenario, the analysis suggests that reserves could improve slightly, but not enough to avoid a collapse.

In a stagnation scenario, the analysis suggests that reserves could improve slightly, but not enough to avoid a collapse.

“Finally, if we sought to maintain reserves above that threshold in the least optimistic scenario, a fall of 9% in 2025 and 1% in 2026 would be required, which reflects the complexity and severity of the economic situation,” he analyzes. .

Thus, the document concludes that the Milei government opted for economic anemia as its main strategy to generate foreign currency, at the expense of the private sector that could have used those resources for production and consumptioneither. “Anemia is not only an extreme variant of neoliberal adjustment, but it represents an indiscriminate approach that has structural effects on the economy, generating a weakness that could be irreversible,” he maintains.

Finally, he highlights that it is crucial to diagnose and address these issues early to avoid structural damage to the Argentine economy. “The evidence suggests that the model proposed by Milei is not compatible with sustainable growth“Unless significant changes are implemented in exchange, productive and trade policies, it is likely that the country face a breakdown due to the social effects of prolonged depressionexacerbated by the lack of international reserves.

Source: Ambito

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