By Ugo Akpan
On Sunday, 10 December 2023, Javier Milei, the right-wing populist candidate who won the 19 November run-off, was inaugurated as the new president of Argentina. The 53 year old Economist, whose intellectual inspirations include Milton Friedman and Robert Lucas of the infamous Chicago School of Economics, campaigned on an extreme right-wing libertarian ideology. According to Mark Weisbot of the Center for Economic and Political Research (CEPR), a Washinton DC based thinktank, Milei claims that “every time the state intervenes, it’s a violent action that harms the right to private property and in the end, limits our freedom.” And he plans to apply this to fixing the problem of hunger, poverty and employment. Milei also wants to dollarize the Argentinian economy, with the objective of replacing the Argentinian Peso with the US Dollar. He wants to get rid of many ministries, including key ministries such as Education, Health and cut public spending by at least 15 percent. Milei identifies as an “anarcho-capitalist”—someone who believes that the economy should be organized purely based on private contracts, and that the welfare state is “the enemy.” While he still claims to be an anarcho-capitalist, intellectually speaking, his recognizes some limitations in his ability to push through some of his most extreme policies given that his party has only 39 seats out of 257 in the lower House, and eight out of 72 in the Senate. He will therefore have to rely on the party of former President Mauricio Macri, whose support was crucial to his victory in November 2023.
Fallout for Argentina
Javier Milei carried around a chainsaw as a prop on the campaign trail as a symbol of his intention to deliver drastic cuts to public spending including in crucial sectors as Education, Culture, and Health. He described the state as a “paedophile in a kindergarten”. In line with his extreme free market libertarian ideology, he proposed to dollarize the Argentine economy and get rid of the country’s Central Bank. Milei vowed to cut trade ties with China and Brazil, two of Argentina’s main trading partners, given his virulent anti-socialist ideology. Milei also said Argentina would not join the BRICS block in 2024 firmly pitching his country in the western camp.
Milei has already had to backtrack on scrapping the Central Bank and abolishing the Peso as the reality of the disaster that such a policy could wreck on the Argentine economy became clear following his appointment of the Luis Caputo, a former finance minister and Central Bank President, as Minister of the Economy. However, Caputo has unleashed a first a first dose of economic shock therapy, including a 54% devaluation of the Argentine peso, to bring the official exchange rate closer to the informal “blue” one; a halt on all public works, the freezing of public sector salaries, a sharp rise in taxes, and the elimination of many public subsidies, all of which could wipe out what remains of Argentina’s fragile economy. Predictably, the package of measures places the lion’s share of the burden on the already buckling shoulders of Argentina’s middle and working classes while the so-called political and economic caste — whom Milei vowed to eliminate during his election campaign — will emerge either largely unscathed or even wealthier. In fact, Argentina’s Central Bank, also under new (and old) management, has prepared what many are calling a generous bailout of some of the country’s largest importing companies.
In the meantime, China has halted a $6.5 billion currency swap facility with Argentina, and the suspension will persist until President Javier Milei demonstrates a clear commitment to engaging with Beijing, as per Argentine media reports, according to Al Mayadeen. This funding is part of an agreement renewed on an annual basis since 2009, proving crucial for Buenos Aires given its scarcity of US dollar reserves. Argentina has utilized these swaps as one of its limited credit options, particularly in light of the nation’s historical tendency to default on international debt. Following Milei’s inauguration on 10 December, he reportedly contacted Chinese President Xi Jinping, expressing his interest in maintaining those agreements, as reported by Pagina 12, an Argentine newspaper. Shortly after, Argentina’s Foreign Affairs Minister, Diana Mondino, held a meeting with Wu Weihua, who was Xi’s special envoy to the inauguration. During the meeting, Mondino advocated for a prompt renewal of the agreement. As reported by Argentine news website Infobae, China’s decision to suspend the currency swap agreement was triggered by Argentina’s purchase of used F-16 fighters from Denmark, originally manufactured in the US. While the deal confirmation is yet to be officially announced, Infobae noted that Argentina’s Defense Minister, Luis Petri, met with Xavier Julian Isaac, the Brigadier General of its air force, on Monday to affirm Milei’s intention to acquire the F-16s.
Before Milei’s presidency, Argentina had been in discussions to acquire new Chinese JF-17 Thunder jets, a move that reportedly angered Washington, aiming to curtail Beijing’s influence in South America. The US not only approved the F-16 sale to Argentina but also committed to providing weapons, training, logistical support, and spare parts for the jets.
According to Infobae, China is awaiting “a clear gesture of goodwill or friendship” from Argentina to resume the currency swap. The news outlet mentioned that China’s ambassador to Argentina, Wang Wei, was recalled to Beijing for discussions on Milei’s plans and approach to projects prioritized by Xi. Patricio Giusto from the Sino-Argentine Observatory in Buenos Aires expressed concern over China’s freezing of funds. Without the financial cushion from the $6.5 billion agreement, Argentina might need to renegotiate its debt with the IMF, seeking alternative funding sources, a task Giusto deemed “not easy at all”.
Giusto proposed that China’s discontent could extend beyond specific decisions, indicating a desire for a more substantial change in Argentine foreign policy. Buenos Aires’ recent decision to abstain from joining the BRICS economic bloc and the potential abandonment of a Belt and Road Initiative project suggest a potential reorientation in Argentina’s international alliances. This shift might prompt China to apply economic pressure in response. “This interdependence we have with China is irreplaceable. We cannot replace it now with the US or Europe,” he said, adding that Milei’s administration should “try to understand better what China represents and how Chinese diplomacy works because there will be a lot of trouble ahead if this [relationship] is not properly addressed”.
Who is Caputo?
In an article by Nick Corbishley published in naked capitalism, Corbishley identifies Caputo as a life-long friend of former President Mauricio Macri, whose government (2015-19), with Caputo’s help, did more harm to Argentina’s economy than any other since Carlos Menem’s disastrous ten-year tenure in the 1990’s. Caputo began his career as an investment banker, first as chief of trading for Latin America at JP Morgan Chase (1994-8) before slotting into a similar role at Deutsche Bank (1998-2003). He was later appointed chairman of Deutsche Bank’s Argentine subsidiary. In more recent years, he has managed his own investment fund and sat on the board of an Argentine energy company.
Caputo’s brief period in the public sector from 2015, is of particular interest. First, Macri appointed his old school chum as secretary of finance, only to bump him up to finance minister and eventually Central Bank governor, all in the space of just three years. During that time, Caputo held more sway over Argentina’s economy than just about anybody else in a government position. And it was during that time that the seeds of Argentina’s current crisis, including its out-of-control inflation, were sown.
First, the government offered to pay off the vulture funds that had bought, for cents on the US dollar, the bonds of the investment funds that had refused to accept previous write-downs of Argentina’s debt, in 2005 and 2010. They included US billionaire Paul Singer’s Elliot Management. The government’s goal was to return to international debt markets so as to access cheaper (foreign denominated) debt, which it then gorged on with reckless abandon.
Between 2016 and 2018 Argentina’s foreign debt mushroomed from 17.7% of GDP to 41.8% and gross debt in foreign currency almost doubled, from 36.3% of GDP to 65.8%. Inflation also surged, from around 15% in late 2015 to over 50% by the end of Macri’s term. Even the Spanish-language Wikipedia page for Caputo includes a section documenting the myriad irregularities and potential fraud involved in the settlement reached with the holdouts.
In 2016, the prosecutor Federico Delgado called for an investigation of the State’s payment to the holdouts, through a document in which he demonstrated possible legal and procedural irregularities in the indebtedness and payment, and declared that the $16.5 billion debt the administration took on to write off the $12.5 billion “owed” to the bondholders was “the finishing touch to a gigantic scam against the national State.”
A year later, the American journalist Greg Palast gave an interview in which he stated that Paul Singer financed Mauricio Macri’s presidential campaign with $2.5 million, thus ensuring an exponential profit on his lawsuit against Argentina. In this manoeuvre and in the deal the Macri government would reach with the fund, Singer obtained profits of 10,000%. Asked about his relationship with Paul Singer, Macri declared that he did not know him and that he was not aware that he had made a contribution to his campaign.
But it is what happened next, when Caputo was central bank governor, that set the stage for Argentina’s current woes. In 2018, with elections looming, inflation surging and Argentina’s debt situation once again spiralling out of control, the Macri government asked the IMF for a $57 billion bailout, the largest in the fund’s history, of which $44 billion would be disbursed.
As Michael Hudson recounted in an interview with the Real News Network, since Argentina’s 2001 bailout, which was almost entirely used to enable capital flight, rank-and-file staff at the IMF had adopted a slogan: “no more Argentinas!” But the Fund’s senior ranks, led at the time by President Christine Lagarde, now at the helm of the European Central Bank, ignored that hard-earned lesson, or perhaps just didn’t care. After all, Macri’s administration was exactly the kind of government the IMF likes to do business with. The money, or at least most of it, was quickly disbursed though, once again, it didn’t last long in the country. In the absence of capital controls, Argentina’s oligarchy simply took their share and sent it aboard. Once again, an IMF bailout had been used to subsidise capital flight so that Argentina’s wealthiest businesses and citizens could yank their money out of the country before the currency collapsed — all on the government’s tab.
Which brings us back to the present, and the biggest insult of all: to hear Caputo, the man who more than almost anyone else set this current crisis in motion, as even Milei admitted in a televised interview a few years ago, introduce his reform package on Tuesday with the following words: “the legacy we are inheriting is the worst in history.”
Incidentally, Milei’s choice for central bank chief, Santiago Bausili, was until recently a partner in Caputo’s investment fund. Like Caputo, he worked for JP Morgan (for 11 years) before joining Deutsche Bank (for another eight). He also worked under Caputo in the Macri government, first as under-secretary of finance and later as secretary of finance. Most controversially, Bausili received a significant share package worth $180,000 from his former employer, Deutsche Bank, at the same time as he was fulfilling his duties as a public servant. Those duties allegedly included helping the government issue foreign debt bonds as part of the agreement reached with the overseas vulture funds. As luck would have it, Deutsche Bank would end up charging the second highest fees for helping to place the foreign debt bonds issued by the Macri government between 2016 and 2017, as Página 12 reports.
In 2021, Bausili was accused of conflicts of interest in his interactions with Deutsche Bank during his time in government. The judge in the case, Sebastián Casanello, concluded that the evidence presented had demonstrated “Bausili’s detachment from the high standards of ethics and transparency that his role required of him,” adding that all the actions taken by Bausili in that period “were prohibited by law.” Four months after Bausili’s prosecution, an appeals court overturned the ruling.
Casanello continued his investigation, however, accumulating more evidence against Bausili. In September 2022, he insisted on reopening the case. But this Tuesday, one day before Bausili was confirmed as the next head of the central bank, the Buenos Aires Federal Chamber once again blocked the prosecution.
Straight out of the IMF Playbook
Caputo’s new economic reform package has drawn parallels with the neoliberal reforms enacted by Peru’s former President (and long-term inmate of Barbadillo prison) Alberto Fujimori during his first term in office, known as “Fujishock”. As even Wikipedia notes, Fujimori’s economic program “bore little resemblance to his campaign platform and was more drastic than anything [his rival candidate], Mario Vargas Llosa, had proposed.” What followed was “economic agony” (again, Wikipedia’s words) as “electricity costs quintupled, water prices rose eightfold, and gasoline prices rose 3000%.” Eventually, the economy stabilised.
It will be a similar story for Argentina — a country that has, for a host of reasons, been in a near-constant state of crisis for most of its history, as Jeffrey Sachs said in a recent interview with The Duran — but with one key difference: the Argentine economy is unlikely to stabilise any time soon; in fact, it could well collapse once again.
One thing that is clear is that most Argentinians, many of whom voted for Milei out of a mixture of desperation, frustration and anger with the establishment parties, face a crushing loss of purchasing power as the devaluation and rising import taxes drive inflation even higher while wages and pensions stagnate and public subsidies on energy and public transport are withdrawn.
In a complete departure from the libertarian ideals, he espoused as a TV pundit before becoming a politician, Milei has also proposed a three percentage-point increase on practically all exports, from 12% to 15%. As Reuters reports, the government “is desperate for funds, especially foreign currency, with the grains sector the dominant driver of exports.” The government has also hiked import taxes from 7% to 17.5%, which will also fuel further inflation, and is considering reimposing income tax on struggling families. These reforms will unleash much higher inflation for at least the months to come, as the Milei government itself has admitted, while ripping away all the social protections that have allowed people on modest incomes to eke out an existence. This is in a country where the poverty rate is already above 40%, affecting 18.6 million Argentinians. As NC has reported before, this kind of austerity literally kills, through desperation, suicide and lack of access to basic health services.
Even so, the IMF was lightning-quick to approve Caputo’s raft of measures. In fact, it is probably safe to assume that the Fund provided some input on the drafting of the measures. As the Argentine financial journalist Alejandro Bercovich notes, what we are seeing is a classic IMF package: “The aim is to generate recession, reduce imports in order to accumulate dollars and thus continue servicing the debt owed to the Fund and lower inflation by cooling demand.”
In a statement, the IMF quipped that “[T]hese strong initial actions aim to significantly improve public finances in a way that protects the most vulnerable in society and to strengthen the exchange rate regime”.
Of course, the IMF has a long, storied history of getting things badly wrong, especially with respect to Argentina. In March 2018, for example, the-then managing director Lagarde described the first two years of [Macri’s] reforms as “amazing”. All this despite the Fund’s research arm which has issued studies in recent years confirming that both austerity and highly mobile capital increase inequality, making life much more difficulty for the most vulnerable in society, and that inequality is a drag on growth, which does nothing but hinder a struggling government’s ability to pay back its debts. Unfortunately, none of this appears to have informed the fund’s policy making.
Just another Neoliberal Scam
Lastly, in another dark blast from the past, the Milei government’s economic reform package appears to include a public bailout of private sector debts. Again, not what you’d expect from a self-proclaimed “anarcho-capitalist”. From Izquierda Diario:
The Central Bank will go into debt for a sum of up to US$30 billion to rescue the private debt of importing companies. It will issue Bonds for the Reconstruction of a Free Argentina (BOPREAL) that importers of goods and services will be able to access in pesos, which will then be settled in 2027 in dollars. After announcing a financial war plan that will destroy salaries and pensions, Caputo endorses this scandalous debt package…
The debt of importers with foreign suppliers, which generally hovered around $30 billion in recent years, surged to almost $58 billion in 2023, as a result of a foreign currency shortage caused by [Argentina’s historic] drought. This led the central bank to delay or reduce the delivery of foreign currency, causing a sharp rise in non-payment to suppliers. Now, the new head of the central bank wants to “resolve” this issue by selling this new bond to importers so that they can pay off their debts. It is a liability that will preserve its value in dollars while generating returns [of up to 5% per year] until 2027. Of all the possible solutions to the problem of rising private debt, the central bank chose the worst: its conversion into public debt.
If there is one crowning lesson to take away from all of this, it is, as the French say, plus ça change, plus c’est la même chose (the more things change, the more they stay the same).