Argentina: Is Javier Milei moving his country back toward the West?

Shifting away from China and toward the US: Argentina’s new leader wants radical change, in foreign policy, too. Yes to free trade and the dollar, a “perhaps” to Mercosur, no to BRICS. Quo vadis, Milei?

Milei seems to be taking steps to set Argentina on a course of rapprochement with the West

No country owes the International Monetary Fund (IMF) as much as Argentina does — more than $31.1 billion (€28 billion) at the present moment.

This Friday, IMF representatives were in the Argentinean capital, Buenos Aires, to talk about repayment. The country’s new president, Javier Milei, says he believes the negotiations will be successful.

Milei’s economy drive is “harsher” than demanded by the IMF, writes the Spanish daily El Pais. Since Argentina’s 2001 sovereign debt default, the country has not succeeded in stabilizing its state finances.

First foreign trip: Destination Washington

Drawing closer to the IMF, which is extremely unpopular in Argentina, can be seen as a sign of Milei’s desire for rapprochement with Washington.

The president wants to work on relations with the US and the EU, two entities that are ideologically more in step with him, says Detlef Nolte from the German Institute for Global and Area Studies (GIGA) in Hamburg.

The fact that Milei’s first official foreign trip, at the end of November 2023, was to the US and not to Brazil, as tradition would have had it, is only one among many signs of this stance, according to Nolte. For him, the basic thrust of Milei’s foreign policy is plain to see.

“I believe we can say that Milei will move Argentina closer to the Western camp,” says Nolte.

Milei’s support of Ukraine and Israel fits in with this trajectory. Ukrainian President Volodymyr Zelenskyy attended Milei’s inauguration ceremony on December 10, 2023, at the latter’s invitation. And since the October 7 terror attack by the Islamist militant group Hamas on Israel, Milei has stressed his solidarity with Israel and the Jewish community in Buenos Aires several times.

Zelenskyy’s invitation to Milei’s inauguration can be seen as a move toward more unity with the West

Dollar instead of peso

This self-decared libertarian and “anarcho-capitalist” intends to apply radical measures to end Argentina’s long economic crisis. Workers’ rights are to be curtailed, welfare programs cut and the state’s scope for action reduced to a minimum.

To come to grips with inflation, Milei wants to get rid of the Argentinean peso and make the US dollar the national currency on the premise that this will prevent governments from printing money as needed.

The president has often accused his predecessors of “unbridled financial policies” and “clientelistic subsidization.” He blames what he calls an impenetrable thicket of economic and trade restrictions for weakening the economy even further.

But the shock therapy he plans is controversial. The country’s largest union, which was close to the former Peronist government, has already staged big demonstrations. On Wednesday, an Argentinean court responded to a legal complaint by suspending the president’s decree on a reform of labor laws till further notice.

Milei’s plans for economic reform have roused considerable protest

Increasing poverty

Argentina was once a wealthy country but has been dogged for decades by massive economic problems. Between 1983, the year democracy was reintroduced in the country, and 2021, its gross domestic product has increased by just 29% per capita. To make the comparison: This figure increased in the same period by 48% in the Latin American and Caribbean region as a whole, and by 87% worldwide.

The economic crisis has worsened in the past few years. For example, the official poverty rate grew from 32.2% in 2016 to more than 40% in the first half of 2023. And the annual inflation rate, having remained in the two figures for years, officially hit 161% in 2023 as well.

No multilateral trade agreements

With regard to international economic policy, Milei is a fan of bilateral rather than multilateral alliances. He has therefore said he wants to leave the South American single market, Mercosur, in which Argentina is partnered by Brazil, Paraguay and Uruguay — unless, he says, a “bigger, better Mercosur” can be created.

Daniel Raisbeck, the Latin America analyst of the libertarian US think tank Cato Institute, thinks that is a sensible approach.

“Mercosur is a tariff union and, as such, it is a major obstacle in the way of Argentine trade with the rest of the world. Hence, I believe Milei should stick with his idea of withdrawing from Mercosur unless the latter can be overhauled radically and in favor of free-market and free-trade policies, which is a doubtful scenario,” he said.

Federico Foders, a retired economist from the Kiel Institute for the World Economy, sees things in a similar light, pointing to the difficulties that have become apparent in the years of fruitless negotiations between Mercosur and the European Union.

Foders believes resistance from the French agricultural lobby and Brussels’ obvious intention of “dictating environmental policy” to the Latin American partners have been the main stumbling blocks here.

BRICS: Between ideology and pragmatism

It thus came as no surprise that Milei also called off Argentina’s planned accession to BRICS. In the official letters of cancellation, he instead offered to deepen bilateral trade relations with each individual BRICS member.

The old government had planned for Argentina, together with five other emerging nations, to join this loose alliance of states on January 1, 2024. The group’s name is composed of the first letters of the founding members: Brazil, Russia, India, China and South Africa.

During a campaign event, Milei brandished a chainsaw to symbolize what he intended with the central bank

In an interview with the Argentinean daily La Nacion, Milei’s foreign minister, Diana Mondino, explained that the decision was mainly a practical one, while frankly conceding that it also had an ideological component.

During his election campaign, Milei had declared that he would cut off relations with authoritarian and communist countries, in which category he included China and Russia, as well as Brazil.

But as a president, Milei has taken on a more statesmanlike manner. After all, Brazil and China are far and away Argentina’s most important trade partners.

And China, according to the IMF, is also the biggest creditor of his debt-stricken nation.

This article was adapted from German.

Author: Jan D. Walter