Last Sunday, with an annual inflation rate exceeding 110%, Argentina held its 2023 presidential primaries. Candidates who secure more than 1.5% of votes in these preliminaries will compete in the official elections in October.
Facing soaring inflation, a declining GDP, and a consistently depreciating Argentine peso, voters voiced their discontent with the establishment parties. This week's election results revealed Javier Milei, often dubbed the "Argentine Trump" from the far-right party, emerging victorious in the primaries.
Opposition alliance candidate and former National Security Minister Patricia Bullrich and ruling party alliance candidate and current Finance Minister Sergio Massa trailed in second and third places, respectively.
Latin American and Argentine media labeled these results a "political earthquake" for the country, signaling a "new political order" and a "dark night for the ruling party."
Milei, 52, serves in the Argentine Congress and is an economist. He once worked at HSBC and has penned economic publications, also being a member of the World Economic Forum. Earlier in life, he was the lead singer of a rock band and participated in professional football leagues. During his campaign, his leather jacket attire and disheveled hair portrayed an image reminiscent of a rock star disruptor.
Mirroring his personal image, Milei's political stances defy convention. Identifying himself as a neo-liberal, he believes that the government is the primary reason for Argentina's poverty. Among his bold proposals are significant government cuts, including the education sector, abolishing the Argentine Central Bank, adopting the US dollar in place of the Argentine peso, drastic tax cuts, and legalizing the trade of human organs and firearm possession.
In foreign relations, he shows strong affinity towards the US and Israel, planning to relocate the Argentine embassy in Israel to Jerusalem.
After Milei's victory in the primaries, Argentina's stock, bond, and currency markets took a hit. In a bid to stabilize the situation, the Central Bank of Argentina raised its benchmark interest rate by 21 percentage points to 118%. Wall Street analysts offer varied insights for the October elections but anticipate a second round of voting.
Establishment Parties Falter
According to the Buenos Aires Times, with 97% of the votes counted, Milei's party, the "Liberty Advance Party," secured over 30% of votes. Bullrich from the center-right "Change Alliance" garnered 28% while Massa from the center-left "United for the Homeland" alliance had 27%.
Contrary to initial polls suggesting Milei would only achieve 20% of votes, the actual results greatly differed. Of Argentina's approximately 35 million registered voters, only 69% voted on Sunday - the lowest turnout in a decade.
The unpopular sitting president, Fernández, will not contest the October elections. For decades, Argentina has seen a power rotation between right-wing and left-wing establishment parties. Both Fernández and the president before him, Cristina, represented the center-left, while the 2015-elected Buenos Aires former mayor, Macri, hailed from the center-right.
Post-primary victory, Milei asserted that the primary results marked the first step in Argentina's reconstruction, aiming to end what he described as the "parasitic, corrupt, and useless political caste."
On Monday, the day Milei's win was confirmed, Argentine long-term bonds declined by 4.4 cents. The dollar-priced Argentine S&P Merval index momentarily dropped by 3% before recovering slightly. Global X MSCI Argentina ETF, listed in the US, fell by 2.9%. To stabilize the market, the Central Bank of Argentina devalued the peso by 18%, bringing the exchange rate to 1 USD to 350 pesos and increased the base interest rate from 97% to 118%.
Local suppliers hiked prices overnight by up to 20%. MacStation, an official distributor of Apple products in Argentina, raised computer prices nearly 25%. Certain stores in Buenos Aires even halted sales of items like toilet paper and car parts, awaiting price stabilization.
Amid this backdrop, Argentina is mired in a deep economic crisis. As of July-end, foreign exchange reserves had plunged to $24.032 billion, the lowest in nearly 17 years, with a poverty rate surpassing 40%.
Data released on Tuesday showed Argentina's consumer price index for July rose by 6.3%, surpassing June's 6%. Over the past year, the cumulative inflation rate reached 113.4%, with the rate for the first seven months of this year at 60.2%. With the peso's ongoing plummet, local analysts project that the inflation rate for August and September will surge into double digits.
Tackling the economy will be the top priority for Argentina's next president, as the country still negotiates a $44 billion loan with the International Monetary Fund (IMF).
The official first-round election is slated for October 22nd. Candidates with over 1.5% votes in the primaries are eligible, and each party can only nominate one individual. Following the primaries, eight candidates are set to contest in October, with the primary battle anticipated among Milei, Bullrich, and Massa.
To secure the presidency in the first round, a candidate must achieve 45% of votes. If they secure at least 40% but less than 45%, they must lead the second-ranked candidate by at least 10 percentage points. Failing these criteria, a second round between the top two candidates will occur on November 19.
Milei's Advocacy
Milei, who began serving as a Congressman in 2021, comes from a working-class family. His mother was a homemaker, and his father once worked as a bus driver. In his younger years, he played soccer for the Chacarita Juniors, a team in the Argentine Primera División, and was the lead singer of the rock band Everest.
In college, Milei specialized in economics. He pursued his undergraduate degree in economics at Belgrano University and later earned two master's degrees in economics from the Teratolcuto University and the Institute for Economic and Social Development.
After graduation, Milei worked as an economist for several financial institutions, including HSBC. He then moved to the think tank Fundación Acordar to lead its economic research department. He has authored numerous economic studies, is a member of the G20 advisory body, participated in the World Economic Forum, and even advised Argentine billionaire Eduardo Eurnekian.
Milei identifies himself as an anarcho-capitalist and belongs to the neoliberal camp. He blames Argentina's poverty on government interference and pledges to return freedom to Argentines and allow them to determine their own destinies.
According to Milei's plan, he will undertake sweeping reforms in Argentina. Economically, he advocates for drastic cuts in government spending; plans to abolish 17 out of the 25 ministerial bodies, including the Ministry of Education and the Ministry of Health; reduce taxes and eliminate some levies; privatize all loss-making state-owned enterprises; and encourage private investment and natural resource development.
What has been most controversial is Milei's proposal to abolish the Argentine Central Bank and replace the Argentine peso with the U.S. dollar. He believes that adopting the dollar as Argentina's currency would resolve issues of peso devaluation and hyperinflation.
Argentina had previously pegged its peso to the dollar in the early 1990s. This measure temporarily stemmed hyperinflation and the economy grew rapidly. However, by the late 1990s, Argentina fell into a severe economic recession and eventually unpegged the peso from the dollar in 2002.
On social issues, Milei opposes abortion, supports the legalization of carrying firearms, and endorses the legalization of human organ trade. Like Trump and former Brazilian president Bolsonaro, Milei also considers global warming to be a hoax.
In foreign policy, Milei has declared that Argentina will forge ally relationships with the U.S. and Israel. He admires Trump and plans to move the Argentine embassy in Israel to Jerusalem.
In February of the previous year, China and Argentina signed a memorandum of understanding, and Argentina officially joined the "Belt and Road" initiative. In June of this year, China and Argentina signed a cooperative plan to jointly promote the "Belt and Road" initiative. That same month, Argentina's government used special drawing rights and the renminbi to partially repay the IMF, marking the first time Argentina repaid foreign debt using the renminbi.
Analysts from U.S. financial institutions generally believe that even if Milei is successfully elected as Argentina's president, he would need to moderate his stance to get his reform plans approved by Congress.
During an interview with Bloomberg, EMFI Group analysts Gerónimo Mansutti Silva and Matías Bensousan noted that only about half of the congressional seats in Argentina will be up for re-election this year, and Milei's party, the Liberty Forward Party, won't have an overwhelming majority in Congress. For Congress to approve his plans, Milei would have to make concessions.
Citi Group strategists Dirk Willer and Ernesto Revilla hold similar views, believing that even if he wins, Milei would need to adjust his reform plans to gain support from other political parties.
For the October election, analysts generally believe that the first round of voting will not produce a clear winner. Milei and his competitors are likely to go into a second round of voting. Analysts from the EMFI Group think the "worst-case scenario" would be a Milei victory, but the chances of this are slim, with a more moderate center-right opposition coalition potentially winning in the second round.
Credit Suisse analyst Alberto Rojas believes that Milei may enter the second round of voting against a center-left candidate, Massa. Given voters' dissatisfaction with the establishment, Milei still has a chance to win.
