Matthew Lynn Matthew Lynn

Will Javier Milei’s ‘shock therapy’ work?

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The Argentinian peso has been devalued by 50 per cent overnight. Controls on exports have been scrapped, and the country’s ministry of culture is to be closed down. The health, labour, social development and education departments are also facing the chop. Argentina’s president Javier Milei – who vowed to deliver economic ‘shock treatment’ in his first speech on Sunday after formally taking office – has started a radical overhaul of the economy and begun what is by far the most interesting experiment in economics in the world right now. 

True, Milei may not have gone as far as some people might have expected. The plan to replace the peso completely with the American dollar has been shelved for now. So far, at least, the central bank has not been abolished, although given that it is currently presiding over an inflation rate of 140 per cent it could hardly complain if it was. By any normal standards, Milei is taking an axe – if not a chainsaw – to Argentina’s bloated state apparatus. 

Milei is right to be bold. The currency markets, which will be by far his greatest point of vulnerability, can’t attack him. He has already trashed the currency, with a huge devaluation, and it was significant that the impeccably centrist International Monetary Fund quickly put out a statement supporting the move. Milei knows that the only time he can make deep cuts in public spending is right at the start of his term, when momentum is with him. Indeed, by abolishing ministries wholesale instead of trying to reform them, Milei may well have provided a template for other governments that win power on a free market platform. 

He is right to be bold

The plan is high risk, and may well combust within weeks.

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Matthew Lynn
Written by
Matthew Lynn
Matthew Lynn is a financial columnist and author of ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’ and ‘The Long Depression: The Slump of 2008 to 2031’

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