As he stared up from the bottom of an increasingly deep economic hole, Javier Milei has been offered a ladder from the likeliest of sources: Donald Trump.
The US president has called Argentina’s leader his ‘favourite president’, and he appears to be a fan of the sideburned iconoclast’s libertarian ideals. But in Argentina, Milei’s ideals are becoming increasingly worthless. Midterm elections are approaching, and the Argentine government has spent more than $1 billion propping up its currency.
US Treasury Secretary Scott Bessent offered a significant shot in the arm to Argentina when he said this week that the US ‘stands ready to do what is needed’ to support their economy. Argentina is already in deep with the US-based International Monetary Fund. Milei’s $20 billion bailout from earlier this year is just the latest in a string of loans from the fund. According to some estimates, Argentina owes 35 per cent of total IMF disbursements.
In his first months in charge after sweeping to power with a ‘chainsaw’ agenda to slice the state to ribbons, Milei earned the admiration of the US leader by gutting the government budget, firing tens of thousands of workers and delivering a fiscal surplus for the first time in decades. Inflation plummeted. Milei shared a stage with Elon Musk, whose own ill-fated attempts to cut US government spending followed the his playbook, and he fast became the darling of the global right.
Recent weeks have been more difficult. A corruption scandal linked to his sister Karina proved deeply embarrassing for a president who claimed to be taking on the political casta; Congress defied him to increase public spending on public health and education, a direct challenge to his mantra of no hay plata (there is no money); a fortnight ago, he lost a provincial election to his political enemies, the Peronists.
It is the peso, however, that has sent the economy teetering. By single-mindedly trying to keep inflation down, the country has spent lots to protect its currency. The central bank has been forced to sell huge amounts of foreign currency reserves to secure its value. Marc Sobel, a chairman of the Official Monetary and Financial Institutions Forum said this week that this had created a ‘glaring weakness’ which has ‘now come home to roost’.
Milei promised Argentines that his economic ‘shock therapy’ would be tough. But the public is beginning to wonder when the therapy will begin to work, so life can return to normal.
Argentines are wondering when Milei’s therapy will work
The president will take heart from the fact that Bessent’s announcement, despite lacking in details, sent Argentine bond prices soaring. This welcome relief could not have come at a better time. In just under a month, Argentines will go to the polls for national midterm elections. Milei won the 2023 general election in a landslide, but now faces a serious test in consolidating his power. Many remain frustrated by government cuts and lagging salaries and could be preparing to give him his first major electoral bloody nose. Had the economy spiralled out of control, this could have proven disastrous. US support buys him some time.
Aside from a feeling of political alignment between Milei and Trump, there are many other reasons that the US president might want Milei to do well in October’s midterms. There are larger geopolitical goals at play. Chinese influence on the continent is growing quickly, a trend particularly evident in Argentina’s salt flats where several Chinese companies are involved in proposals to mine lithium. The mineral is an increasingly important energy transition material, and the US does not want to fall behind its rival superpower which already dominates the market.
Argentina, too, offers a strategically important window to the Antarctic via its southern ports. Many observers see the region as a potential military flashpoint in the future. Representatives of US Southern Command, an arm of the military, have visited the south of Argentina since Milei took power.
Milei sees himself as a natural ally of the US over China. He called China an ‘assassin’ during his campaign (although he has shown a flexibility to trade with China when necessary) and has attempted to get closer to Trump since his election. This may now, literally, pay dividends.
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