The Argentine President Milei chainsaw: A bold vision for Argentina’s rebirth?

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The firebrand new President ignites his nation’s hope for revival, confronting decades of economic decline. Can he deliver?
he 96-year-old TV host, Mirtha Legrand, reaches across and holds the hand of the firebrand new Argentine TV President, Javier Milei.

“I am an old lady, and I don’t want to leave this world without seeing my country flourish”, she asks, through glassy eyes.

President Milei responds: “You will see it flourish”.
Milei holds Legrand’s embrace across the show’s closing credits. And the country’s TV audience dares to dream.

Argentina is hurting

Four in ten Argentines live below the poverty line. Hyperinflation rages beyond 200%. Unwieldy wads of peso banknotes are needed for basic purchases.

Argentina used to be wealthy. Extremely wealthy. In the first half of the 20th century, Argentina was amongst the highest GDP per capita countries in the world, through rich agricultural exports. Millions of people escaped destitution in Europe for the promises of a new life in Argentina, growing the country’s population four-fold. Opportunity beckoned.

But the decades that followed were a tale of self-inflicted economic destruction. The nationalisation of industries, trade protectionism, wage increases untied to productivity and fiscal extravagance. This was Peronism, the era of the populist 20th century president Juan Domingo Perón, and his charismatic wife, Evita. Perhaps unduly glamorised in a catchy Andrew Lloyd Webber musical.

Milei, a former tantric sex coach turned libertarian revolutionary, took oath as President in December 2023. His campaign of rage against the “thieves” of the political elite, and smashing a piñata of the central bank on national TV, resonated with a population frustrated by economic stagnation. Descendants of migrants still await their promised prosperity.

Milei’s “chainsaw” economic program aims to reduce the welfare state, and enact extraordinary economic and social reform.

For the people of Argentina, Javier Milei represents hope. Hope to restore former economic glories. (The football icons, Lionel Messi & Maradona, are deified across Argentina, because they remind Argentines of conquering the world, and what aspiration feels like.)

For the rest of the world, Argentina is a lesson in ballooning state debt, the perils of protectionism and an unaffordable welfare state.

Milei’s explosive speech to Davos, “sticking it up” the global elites, was reminiscent of Ricky Gervais’ tectonic spray at the Hollywood elite when hosting the 2020 Golden Globes. Milei invites the “West” to re-focus on economic freedom and limited government, over divisive cultural issues.

And Milei’s greatest impact may be to lead other South American nations to fall under the spread, not of socialism, but of capitalism. A reverse of the Cold War domino theory of the march of communism.

The rest of the world eagerly watches the Milei experiment.

The challenge ahead
Milei faces enormous challenges.

Argentina faces fragile investor sentiment and has a history of defaults on sovereign debt. The country today faces a $400 billion debt time bomb, albeit the prices of Argentina’s bonds have responded favourably to Milei’s early progress.

Milei lacks a congressional majority and his coalition does not have any governor in Argentina’s provinces. Early setbacks in the passage of Milei’s proposed legislation through Congress might help Milei’s populist narrative, but nuanced political progress is desperately needed.

Milei’s early re-positioning of Argentina’s relationship with Brazil and China, major trading and investment partners of Argentina – Milei abandoned Argentina’s plans to join the BRICS bloc in 2024 – is driven by ideology over economic pragmatism. China’s response to the public rebuke so far has been measured.

And will the population genuinely abandon Peronism – and trust capitalism – and endure the pain of big change. There remains the threat of social unrest triggered by the government’s austerity measures, inflamed by the cumbersome language from some of Milei’s political allies in how they might deal with protests: “Prison or bullets.”

Laws of attraction

Milei and the provinces need to attract foreign capital and expertise.

Argentina shares a 5,300km long border across the Andes mountain range with Chile, but whilst Chile produces 25% of the world’s copper, Argentina today produces … no copper. The country’s geologic potential is vastly under-explored and, according to experts, the world needs to somehow find new copper projects to support $700 billion of capital investment, if we are to achieve our low carbon ambitions by 2050.

Similar potential exists for the country’s enormous lithium (Argentina has the world’s second largest lithium reserves), natural gas, wind & solar endowment – enormous potential, but through a lack of investment and a lack of capabilities, the country’s production is a fraction of true potential. It’s Tom Cruise in a $500k budget film, it’s Lewis Hamilton in the worst ranked Formula One car. Not making enough of its gifts.

World-scale copper mines. Infrastructure expansion across the Vaca Muerta shale formation. Battery factories in Jujuy Province. There are many major investment opportunities in Argentina. But global investors, as prudent stewards of capital, have good reason for hesitation. Investors are wary of volatile political environments in developing nations. Wary of Argentina’s over-regulation and history of corruption, of unattractive repatriation of capital frameworks, complex water issues, and the delicate co-existence with indigenous groups and eco-tourism.

And for the long-term investor, the threshold issue: what does Argentina look like, and are my investments safe, post-Milei?

But let’s take a step back. Much of the world’s undeveloped resources riches are found in host countries with do not have a track record in supporting multi-billion-dollar foreign investment.

Isn’t this the challenge of the 21st century – to incentivise and suitably reward private capital to invest into the vagaries of developing nations and the energy transition?

If successful, a revival of Argentina would influence global geopolitics, and support the world’s decarbonisation ambitions.

Milei’s ability to attract new investment is the litmus test for Argentina’s economic revival. International stakeholders must support Argentina, with actions. As an investor, I would gladly forego some of the dividends I receive from major resources companies, to see these companies make some long-term bets on Argentina’s potential for transformation under Milei’s leadership. An unprecedented cavalry of resources majors, sovereign funds, Gulf and Asian State money, can come together with expertise and … perhaps, in due course, deep pockets … to develop the resources endowment of countries such as Argentina. These are the frontlines of investing for the world’s ambitions of future energy abundance.

And for this, the investors need to believe: the population of Argentina has the ambition, not just to chainsaw the status quo, but to build a generationally better future.

Looking ahead

And so we look forward.

A charismatic, wild-haired underdog. Misty-eyed, dreaming about a better future.

And maybe Lloyd Webber can start thinking about a sequel.

Source: Richard Gannon – Live Wire Markets

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