Javier Milei’s economic plan: not all outsiders “see it” and still distrust the libertarian “experiment”

Several of the main global economic consulting firms do not stop pondering the economic policies of Javier Milei’s administration; in particular the fiscal adjustment, in addition to the reorganization of the Central Bank (BCRA) and the rearrangement of relative prices. However, they remain skeptical about the libertarian experiment. Maybe, Unlike investment bank analysts, who weigh more the “upside” potential of Argentine assets, macroeconomic economists maintain reservations, or rather, are less optimistic about the medium future of the Argentine economy than their Wall Street peers. Street.

On the one hand, they consider that Inflation remains a pressing problemwhere price pressures persist. They are also cautious about the level of economic activity and about the upcoming negotiation with the International Monetary Fund (IMF). In this regard, Tim Huntersenior economist for Latin America at Pantheon Macroeconomics, consulted by this means expressed his caution about the friendly relationship between Milei and Donald Trump and his influence on the IMF. “It will not bear fruit”pointed out, contrary to what the media suggests, that the Argentine President’s close personal and ideological relationship with Trump could mean that the US would be in favor of a new agreement with the IMF for the troubled Argentine economy.

“While our baseline scenario does not rule out a deal as early as next year, we are highly skeptical about the prospects of the US using its weight in the Fund for what amounts to a political favor. If an agreement is reached, we believe it will be after next year’s midterm legislative elections, and “It would only be approved if the country meets its obligations to bondholders and devalues ​​the peso.”he explained.

For Hunter, the media is picking up the 2018 agreement with Argentina as something that the US favored due to Macri’s family connections with Trump. However, “we believe that this agreement was approved because Macri’s agreement itself made sense, therefore, “There is no precedent for Trump to rely on the IMF to favor Argentina, and he will also have more important priorities than using political capital to influence an agreement for Argentina with the IMF.”he adds. “Milei seems to have a close relationship with Trump as has been described in the media, but we do not believe that this is enough for the US to pressure the IMF in favor of an agreement, also because there is no clear position from the other members such as , in Europe and China.”

For Andrés Abadiachief economist at Pantheon Macroeconomics, The inflation projected by the Government for 2025 of 18.3%, significantly lower than the current year’s forecast of 104.4%, is an ambitious goal, given the ongoing economic difficulties, including a projected GDP fall of 3.8% in 2024. It notes that “the Government’s proposed Budget aims for macroeconomic stability, but lacks clear strategies to achieve its ambitious objectives. Overall, recent data suggest a possible cooling of inflationary pressures, but “Argentina faces significant obstacles to stabilizing its economy and effectively controlling inflation under the Milei administration, which must balance fiscal consolidation with growth stimulus measures.”.

The scenario for the midterm elections

In that line it coincides Mauricio Mongeeconomist for Latin America at Oxford Economics, who believes that President Milei’s fiscal objectives will be difficult to meet next year. He believes Milei will ease its fiscal austerity to boost social support ahead of the midterm elections, but this will come at a cost to market confidence. “We believe the January payment to foreign bondholders is assured due to the 2024 primary surplus and the Gold Reserve Repo, but the July payment is uncertain. “The risk of default remains high without a new agreement with the International Monetary Fund (IMF), access to international markets and low reserves,” explains and projects the overall fiscal deficit to reach 0.3% of GDP in 2024 and increase to 1.1% in 2025. “The elimination of the foreign transaction tax (PAIS Tax) and increased spending will hamper efforts to fiscal consolidation,” says Monge.

Pantheon experts interpret that the drop in local stocks was linked to the escalation of political tensions between the Milei administration and Congress, highlighting that “Milei’s controversial decision to veto a law intended to ensure funding for public universities in amidst still high inflation has intensified this friction.” “The political environment is increasingly unstableeven though the government reports a nominal fiscal surplus, and protests against austerity measures increase.”

In this sense, they warn that the ambitious Budget for 2025, which aims for a nominal fiscal balance and a primary surplus of 1.3% of GDP, depends on inflation falling to around 20% by the end of the year and a solid recovery. of GDP of 5%. “Achieving these goals will be difficult, especially given Milei’s minority in Congress. Ongoing macroeconomic instability and social unrest pose a considerable risk to the Government’s fiscal strategy, despite potential avenues for economic recovery. “Austerity measures may provide short-term fiscal relief but, if not handled judiciously, they could exacerbate public discontent and hamper stability.”they say from Pantheon.

Trump and an eventual trade war

For their part, the Oxford people evaluated the impact of a new trade war if Trump wins the presidency in the US and recognized their concern about the possible consequences in Latin America. “Greater political uncertainty under the Trump administration would lead to volatile and likely lower commodity prices and risks to the exchange rate, growth and tax revenues, as Latin America relies heavily on them”he pointed out tim huntr, senior economist for the region. But, even if there were no new trade war, they believe that increased anxiety over new trade restrictions will likely encourage renewed interest in offshoring, although they are relatively optimistic about the opportunities that offshoring presents for Latin America.

“Many countries lack the rule of law, political certainty and infrastructure necessary to attract significant foreign direct investment, even if they are geographically in the US’s backyard. In fact, our model that assesses the attractiveness and resilience of different economies as locations for manufacturing activity, ranks Latin American economies near the bottom in a sample of 41 large economies with Argentina ranking worst, weighed down by meager investment rates and poor infrastructure,” explains Hunter.