Javier Milei, the outsider libertarian candidate with radical solutions to Argentina’s economic crisis, has just won Sunday’s presidential runoff against Economy Minister Sergio Massa.
In a surprise outcome, Massa conceded in a speech to supporters in Buenos Aires on Sunday even before the official results were released, saying he called Milei to congratulate him on his victory.
Javier Milei, a 53-year-old far-right economist and former television pundit with no governing experience, claimed nearly 56 percent of the vote, with more than 80 percent of votes tallied. It was a stunning upset over Sergio Massa, the center-left economy minister who has struggled to resolve the country’s worst economic crisis in two decades.
Voters in this nation of 46 million demanded a drastic change from a government that has sent the peso tumbling, inflation skyrocketing and more than 40 percent of the population into poverty. And with Milei, Argentina takes a leap into the unknown — with a leader promising to shatter the entire system, which the locals now correctly realize, is broken.
Milei, who two months ago was interviewed by Tucker Carlson, has promised to fix Argentina’s perennial economic problems by making drastic budget cuts, replacing the battered peso with the US dollar and shutting down the central bank. He will take office on Dec. 10.
Ep. 24 Argentina’s next president could be Javier Milei. Who is he? We traveled to Buenos Aires to speak with him and find out. pic.twitter.com/4WwTZYoWHs— Tucker Carlson (@TuckerCarlson) September 14, 2023
Massa, from the ruling Peronist coalition, placed first in October’s first round, a remarkable comeback after losing a primary election two months previously. But the dire state of Argentina’s economy, plagued by 143% hyperinflation and a looming recession, posed a challenge too far to his presidential bid.
“Argentines chose another path,” Massa said in a speech to supporters. Polls before the vote showed Milei with a slight edge over his rival.
For those unfamiliar with Milei's unique style, the following clip should be rather informative:
THE JAVIER MILEI MUSICAL IS GONNA BE WAY MORE FIRE THAN EVITA. pic.twitter.com/OHxQwBhXVW— INVESTMENT HULK (@INVESTMENTSHULK) August 18, 2023
Commenting on Milei's victory, Elon Musk predicted that "Prosperity is ahead for Argentina."
Prosperity is ahead for Argentina— Elon Musk (@elonmusk) November 19, 2023
A Milei presidency will have profound implications for not only the third-largest economy in Latin America, but also the region and the world. In a continent dominated by leftist leaders, Milei could create tensions with governments he has attacked, including crucial trading partner and neighbor Brazil. In an era of growing Chinese influence in Latin America, Milei could become the region’s most vocal antagonist to a country he once called “an assassin.”
Milei made a name for himself as a television pundit who insulted other guests, and has shown a tendency to fight with the news media. In presidential debates, he has cast doubt on the widely accepted tally of murders during the country’s Dirty War from 1976 to 1983.
He has branded Argentine Pope Francis an "evil" leftist, called climate change a "socialist lie" and said he would hold a referendum to undo the three-year-old law that legalized abortion.
Wielding chain saws on the campaign trail, the wild-haired Milei vowed to slash public spending in a country heavily dependent on government subsidies. He pledged to dollarize the economy, shut down the central bank and cut the number of government ministries from 18 to eight. His rallying campaign cry was a takedown of the country’s political “caste” — an Argentine version of Trump’s “drain the swamp.”
Massa was emblematic of that ruling elite — “the king of the caste,” said political analyst Pablo Touzón. The career politician attempted to distance himself from the leftist government of Alberto Fernández and Cristina Fernández de Kirchner, the heirs to the populist dynasty first launched by Juan and Eva “Evita” Peron in the 1940s. Along with a grassroots campaign of activists, Massa sought to stoke fear over a Milei presidency they argued could threaten Argentina’s democracy and way of life.
But ultimately, anger won over fear. For many Argentines, the bigger risk was more of the same.
“We don’t have anything to lose,” Tomás Limodio, a 36-year-old business owner who voted for Milei in Buenos Aires on Sunday. “We’ve had this type of government for so many years, and things are only getting worse.”
Argentinian Donald Trump, Javier Milei.— I Meme Therefore I Am 🇺🇸 (@ImMeme0) November 19, 2023
Today is a great for Argentinians! pic.twitter.com/aG5yaAPTsc
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Argentinians return to the polls on Sunday, November 19 to elect the next president in a consequential runoff election. Voters will choose between incumbent Finance Minister Sergio Massa and right-wing libertarian Javier Milei. The election results will shape Argentina’s social and macroeconomic outlook in coming years.
As Goldman writes in its election preview note, polls point to a tightly contested race, with a majority showing Milei having a slight edge in voter preferences. A significant fraction (around one third of polls), however, suggests that Massa is in the lead. In general, polls in Argentina have a poor track record and in this electoral process they have systematically failed to capture shifts in voters’ sentiment. To add to the uncertainty, Massa was seen as outperforming Milei in the final presidential debate last week.
In the August primary elections (PASO), Javier Milei’s La Libertad Avanza party surprised by taking the lead, followed by the center-right coalition Juntos por el Cambio whose presidential ticket would be led by Patricia Bullrich. Massa’s left-leaning Peronist coalition, Unión por la Patria, finished third. In the October first round election, in turn, Massa topped most expectations with an improved performance and finished first. Milei came in second place without a significant change in support, and Bullrich disappointed and finished a distant third.
After the first-round election, part of the Juntos por el Cambio coalition, the faction led by Ms. Bullrich and former President Mauricio Macri, announced their support for Mr. Milei. While the bloc represented by the Radical Party decided not to formally endorse any of the candidates, some members have publicly sided with Mr. Massa.
Following Sunday´s results, investors will turn their attention to economic policy announcements. In the short term, the highly managed exchange rate will be a critical variable to follow. After the August primary elections, the government weakened the exchange rate by about 22% to 350 ARS per Dollar. Subsequently, the exchange rate was kept frozen at this level until this week, when a crawl resumed (1.0% so far this week). Nevertheless, pass-through was high and inflation accelerated considerably after the post-PASO devaluation and as a result, the real exchange rate is now even more overvalued than before the August devaluation.
Parallel exchange rates, for their part, continue to trade at a significant spread over the official rate (162% for the informal market exchange rate and around 145% for the bond (MEP) and equity (CCL) implied rates) and the futures market anticipates a meaningful depreciation in the months ahead. Pressures in both markets, however, eased after the first-round election showed Massa first, having increased significantly following Milei’s outperformance in the August PASO.
Likewise important, in the coming months there are significant payments scheduled to the IMF (around US$0.9bn in December and US$1.9bn in January) and foreign currency bond holders (approximately US$1.5bn due in interest payments in January). In the meantime, the EFF program with the IMF remains off track, and in our view its realignment will take time.
Regardless of the election winner, Goldman writes that a swift change in economic policies is imperative. The accumulated imbalances in the economy have grown too large and must be addressed promptly. The bank expects the economy to contract for the second year in a row in 2024, annual inflation is tracking at close to 150% and is expected to continue to rise in the coming months, the exchange rate is overvalued, international reserves are at critical levels, net reserves are significantly negative (around -US11bn), the fiscal imbalance persists, sovereign bonds trade at distressed levels, and the government lacks access to international financial markets. All in, if policymakers do not steer macro policy in a more orthodox direction, the macro adjustment could impose itself sooner or later, bringing a loss of control of the process and even higher social and economic costs.