Christmas & New Year's Message For Argentina

 

Between 1860 & 1930 Argentina experienced strong economic growth & by 1913 was one of the ten wealthiest countries in the world ranking higher than Canada & Australia.  Its per capita GDP was 80% of that of the United States.

Starting in 1946 with the government of President Juan Peron & his wife Evita, the economic experience of Argentina has been up & down but mostly down.  Peron, a former Army lieutenant general, took power after engineering a coup d'etat in 1943 & his socialist policies gradually shifted leftward leading to state control of the economy.  Unstable Peronism replaced the stable civilian constitutional government that had been in place for the seven decades prior to the Great Depression in the United States.

Under Peron, policies designed to redistribute wealth included increasing state-owned property, controlling prices & rents, & increasing government spending to finance populist programs.  Naturally this led to ruinous inflation.  

Peronism has persisted, to one degree or another, for the majority of the last 80 years resulting in political instability & economic decline in living standards.   

The deterioration of the currency over the past 20 years shown in the above graphic predominantly coincides with the rule of Cristina Kirchner (first as the wife of President Nestor Kirchner from 2003 to 2007, then as president herself from 2007 to 2015, & then as vice president to Alberto Fernandez from 2019 to 2023).  In the 21st century alone Argentina has defaulted on its international sovereign debt three times – in 2001, 2014, & 2020. 

The above graphic tells the story of the unsustainable Argentine government spending the past 20 years & its accompanying inflationary misery & deterioration of any standard of living where 40% of the population now lives in poverty.  The black-market value of the peso is well over 1,000 pesos per U.S. dollar, far exceeding the official rate of 370 pesos per dollar.  The Argentine peso has lost 99.206% of its value against the U.S. dollar from December 5, 2003 to December 10, 2023, going from a value of more than a third of a dollar to 27% of a penny.  See graphic below that shows the growth of the money supply the past five years.

  

Inflation was 143% the past year - see graphic below.

The above three graphs illustrate Steve Forbes' concise definition of inflation - the distortion of prices that occurs when money loses value.  The fundamental cause of Argentina's inflation is the decline of the value of the peso.  Money, first & foremost, is a measure of worth.  Source: Inflation - Forbes, Lewis, & Ames, pages xiii & 9.

With the above backdrop it is no wonder that the Argentine electorate felt they had nothing to lose & on November 19, in a runoff presidential election, elected libertarian economist & Congressman Javier Milei President in a vote of 56% to 44% over the sitting Peronist economic minister Sergio Massa.  The turnout was 74% - you have to go back to 1900 to equal that turnout in the United States for a presidential election.

Since both candidates are steeped in different economic training the voters had a real choice - there were no subtle differences or small distinctions.  

Massa's record & beliefs were on display for most of the last 20 years - he held positions in a Peronist government before working for both Nestor & Cristina Kirchner's administrations as well as Fernandez's.  Massa's lifelong work was centered on making people dependent on government  - one of his campaign strategies was to show commuters two ticket prices for trains & buses: one low priced ticket, with government subsidies, he supported & the other much higher priced under Melei's plan without the government subsidies.  The budget deficit under Massa is 15% of GDP or about three times that of the United States in 2022.

Melei has been a university level professor of economics specializing in economic growth.  He studied the work of Professor Friedman & Dr. Murray Rothbard (& thereby extension to Bastiat) & knows the importance of people producing value in an economy.  Melei follows the laissez faire Austrian school of economics.  Melei opposes identity politics, sex education, abortion, euthanasia, & the notion that humans cause climate change.  He is an advocate for individual rights, has zero tolerance for crime, supports families' choice of education, gun owners' rights, same sex marriage, gender identity, universal healthcare, & legalization of drugs & prostitution.  Melei's foreign policy preferences for Argentina include closer relationships with the United States, supporting Ukraine's stand against Putin's invasion, & less close ties with China. 

The election was virtually over when Massa won Buenos Aires, where a third of the Argentine population lives, by only 1.4% & Melei won Cordoba 74% to 26% by over 1 million votes.  Massa's wins were small to moderate, & sparsely distributed throughout the country while Melei won by substantial margins across the entire country.  Unlike the presidential elections of the United States where Democrats win the west coast, northeast, & a few other states but lose the rest of the country, Melei had no weak spots. 

The actual results of the runoff election were Melei 14,476,462 votes (55.69%) to Massa 11,516,142 votes (44.31%).  Massa conceded defeat before the first official results were announced.

Melei took office on December 10 & his immediate plans include public spending reductions by reducing transfer payments to provinces, cancelling public works, & cutting subsidies to energy & transportation agencies like the train & bus commuter subsidies that Massa supported.  Melei has reduced the official peso exchange rate against the dollar by 55% to bring it into line with the black-market rate which is the true market rate widely used domestically that has benefited importers (whose goods are bought using the low official exchange rate) @ the expense of exporters - now we have to see if the peso stabilizes there.

Due to the instability of hyperinflation & the loss of usefulness of the peso as a medium of exchange Melei plans to dollarize - i.e., use the U.S. dollar in addition to or instead of the peso, close the central bank that has been completely controlled by the treasury, eliminate & cut taxes, & privatize deficit making public companies.  

Melei's plans touch all of the principles of supply side economics: 1) the reduction of the size of government and its claims on earned income, 2)  lower taxes for the highest income earners who are the job creators, & 3) sound-money policies using the U.S. dollar the way Ecuador, El Salvador, Saudi Arabia, Qatar, Oman, Kuwait, Bahrain, & Hong Kong have - either dollarizing or pegging their currencies to the U.S. dollar.

Now turning around Argentina's economy will not happen quickly.  The misery of the entrenched stagflation (both high unemployment & high inflation) will endure a while longer as Melei's various programs come into play.  Melei's party holds only six of 72 seats in the Senate & 38 of 257 in the House so the politicians of all the parties will have to cooperate & recognize the electoral mandate & work with the new president @ least for a while - like Democrats did with President Reagan in 1981.

But the stakes could not be higher for all of Argentina because it is not just the 40% of the population that lives below the official poverty level, it is really all of the people, except for the few elites like Cristina Kirchner, who suffer from the poverty of opportunity where there has been no hope of improvement to the standard of living for most of the past 80 years. 

Javier Melei, & more pointedly the people of Argentina who dared greatly to elect Javier Melei in a landslide to the office of President, gives them a chance.  Now they have to make the most of it.

So it is to Argentina, & specifically the libertarian people who voted to throw off the burden of socialism that I dedicate this Christmas & New Year's message - namely, it is the future that they bring when tomorrow comes.