Argentina’s Milei plans to balance its budget in a few months, says a consultant

Javier Milei, the libertarian economist leading Argentina’s presidential race, would slash government spending to balance the budget within months of taking office but wants to avoid mass public sector lay-offs, an economic adviser planning Milei’s post-election strategy said in an interview.

“The first thing we have to do is to lower the fiscal deficit by 5 percentage points, which is not at all easy,” Dario Epstein said.

“As Argentina is in a very critical situation, with 40 to 45 per cent poverty, what we can’t do is to fire people from the public sector or lower social spending. That is very important.”

Epstein’s comments highlight the awkward policy dilemmas facing Milei, a temperamental populist whose rapid rise has stunned Argentina’s political establishment and alarmed some business leaders ahead of October’s first-round presidential election.

But his small margin of victory in Sunday’s primary vote over the leaders of the country’s other two main political blocs — the incumbent Peronists and the centre-right Juntos por el Cambio (JxC) alliance — heralds a three-way race, and it remains unclear how much appetite Argentines really have for what Milei calls his “chainsaw” plan to slash public spending.

He posed with a model chainsaw while announcing his plans earlier this year.

“I see a big gulf between his ideas and those of his voters,” said Juan Germano, a pollster at Isonomia in Buenos Aires, of Milei. “When you ask his voters what the role of the state should be, they say different things from him. It seems like some of his voters are not actually listening to what he is saying.”

More than two months of campaigning remain, and the eccentric, temperamental personality that has worked for Milei on social media may yet trip him up. The former economics lecturer also faces closer scrutiny of his “anarcho-capitalist” manifesto to fix Argentina’s crisis-wracked economy.

It relies on drastic cuts in public spending to balance the budget and the introduction of the US dollar as the national currency to replace the heavily devalued Argentine peso, with the free circulation of other currencies also permitted.

No economy of Argentina’s dimensions has attempted such a bold plan in recent times: the largest economy outside the US currently using the dollar as its national currency is Ecuador. Dollarisation is popular with some Argentines, who are accustomed to holding their savings in US currency to avoid constant devaluations. Milei’s promise to “burn down” the central bank strikes a chord with citizens dismayed at how the institution prints money to fund government deficits, destroying its value.

But there are huge practical problems. The most obvious is that Argentina’s government has no dollars, with negative net international reserves and the country cut off from international debt markets since its last default in 2020.

Milei himself has backed away from the idea of immediately dollarising the economy, and even his close aides admit that the idea is not realistic until confidence has been restored.

“For dollarisation, we need dollars,” said Epstein. “We are working on a very creative structure [to solve this] but we believe that it will be much easier to get the $30bn to $35bn which we think you need to dollarise once we have carried out [fiscal and labour market] reforms.”

One option under active consideration would be to take $130bn of Argentine dollar-denominated debt held by public sector bodies and put it into a trust under New York law, which would then sell stakes to raise the money needed for the dollarisation, he added.

Milei would also privatise large public-sector entities such as the national oil company YPF and the airline Aerolineas Argentinas, slash the number of government ministries from 18 to eight, and replace the country’s costly public health system with a privately run model funded by social insurance.

Investors and economists like the pro-business thrust of Milei’s ideas but many worry about his ability to implement them in a country with a large welfare state and strong labour unions. The libertarian economist is a political novice, having only entered Congress in 2021, and has no executive experience.

The primary, an obligatory poll for all voters and candidates, acts as a dress rehearsal for October’s election, when Argentina will choose a new president as well as some senators, congressional representatives and governors.

Projections based on the result of Sunday night’s primaries suggest Milei’s La Libertad Avanza bloc would win only about 40 lower house seats out of 257 and eight out of 72 in the senate in October’s congressional elections.

Most lawmakers will belong to the two blocs that dominate Argentine politics: the incumbent Peronists, a broad populist movement influenced for the last 20 years by left-leaning Cristina Kirchner, and JxC.

Milei “would need to form a coalition with JxC as he won’t have a majority”, said Ramiro Blazquez, head of research at BancTrust in Buenos Aires. “He would face quite an adverse congress and would need a pact for governability. If he doesn’t get that, his government is unlikely to last.”

Milei has done nothing to calm tensions since his primary win. He has proclaimed himself ready to govern now, alleged that electoral fraud robbed him of 5 percentage points of support, and suggested that President Alberto Fernandez’s government might not last until its mandate expires in December.

Were protesters to surround the presidential palace during a Milei presidency, the candidate said in a local media interview, “they will have to take me out dead from the [palace]”.

Such extravagant rhetoric has alarmed many Argentine establishment figures, who would prefer a more experienced mainstream candidate.

“The problem with Milei is that you’re getting on a plane and you find out before getting on board that your pilot’s flight experience is in a simulator,” said one business leader. “What do you do?”