Crisis-weary Argentines pin hopes on Milei’s economic shock therapy

By Miguel Lo Bianco and Nicolás Misculin

BUENOS AIRES (Reuters) -Javier Milei will be sworn in as Argentina’s president on Sunday, sealing the abrupt rise of a political outsider who is pledging “shock” therapy and deep spending cuts to fix the South American country’s worst economic crisis in decades.

The wild-haired economist and former TV pundit is carrying the hopes of 45 million Argentines who have been hit hard by 150% inflation. Four-in-10 people live in poverty, currency controls have been put in place to protect the peso, and the country is by far the biggest debtor to the International Monetary Fund.

“I want things to improve,” said bricklayer Jose Luis Rodriguez, 62, while drinking mate tea at his house on the outskirts of Buenos Aires. He wants to be able to afford to fix up his home for his wife and take a short vacation.

“I just want to have enough money. I want to have a decent, real life,” the father-of-six said, explaining that he earned about $400 per month working seven days a week. “If I don’t work, we don’t have anything to eat.”

Argentines like Rodriguez – who voted for Milei – are behind what has been one of Argentina’s most dramatic political shifts in decades, although the self-described anarcho-capitalist has tempered his rhetoric since winning November’s run-off vote.

His win was spurred by voter anger at the outgoing center-left Peronist government for failing to halt the country’s economic slide. Under its four-year administration, prices rose 930%, while the peso lost over 80% of its value against the dollar.

With only a small bloc in Congress for his Liberty Advances coalition, Milei has though been forced to ally himself with center-right conservatives, peppering his Cabinet with moderates, including in key roles leading the economy ministry and central bank.

And he faces serious hurdles to push through some of his more radical plans like dollarizing the economy or shutting the central bank. He has already toned down criticism of key trade partners Brazil and China.

“In the campaign Milei made various specific proposals, especially on the economy, which he won’t be able to carry out, in part due to a lack of legislative quorum,” said political analyst Federico Aurelio, president of consultancy Aresco.

“The key factor for him to maintain support won’t though be whether he fulfills those promises, but if the economic situation of the country and households really improves.”

On Friday, local newspaper Clarin reported that Milei’s economic plan, yet to be unveiled, will see the central bank’s powers over money issuance restricted, the removal of tariff subsidies by April, and a block on publicly-funded works, alongside a spending freeze.

Clarin added that Milei is also planning to freeze private-company budget benefits, a review of public salaries, and a move to sell public companies.

It broadly comes in line with expectations of an initial focus on spending cuts to overturn a deep fiscal deficit.

Milei’s team did not immediately reply for a request for comment.

‘WE WILL HAVE TO BE PATIENT’

Milei will be sworn into office in Congress, where he will receive the baton of command from outgoing center-left President Alberto Fernandez. He is expected to give a candid speech on the economic crisis and his plans to fix it.

The market is anticipating a sharp devaluation to the peso to narrow a gap between the controlled official rate near 360 per dollar and parallel rates that are closer to 900 per dollar, a move which in the short term would stoke even more inflation.

Clarin on Friday reported that the devalued commercial rate will sit at 600 pesos per dollar, while there will be an additional 30% tax on foreign exchange transactions which will drive the effective rate to between 700 and 800 pesos.

A Reuters poll forecasts the exchange rate to take a 44% loss to 650 pesos per dollar, according to a median estimate of 13 analysts surveyed from Dec. 1-5.

Milei’s moderate Cabinet picks and more diplomatic tone have bolstered markets, with equities and bonds climbing as Wall Street has cheered the likely tighter fiscal policy and less chance of radical reforms.

“I see things going well. I think that if Milei is allowed to govern he will make history,” said Emanuel Rios, 27, who works for a security company in Buenos Aires. “But we will have to be patient.”

Milei has gained backing from global right-wing figures like the former presidents of Brazil and the United States, Jair Bolsonaro Donald Trump. Hungary’s Prime Minister Viktor Orban is expected at the inauguration.

Chile’s President Gabriel Boric is also expected to attend, but other center-left regional leaders such as Brazil’s Luiz Inacio Lula da Silva and Mexico’s Andres Manuel Lopez Obrador will be absent.

A U.S. delegation led by Energy Secretary Jennifer Granholm is set to attend, which will also include White House adviser Juan Sebastian Gonzalez.

The real test for Milei, however, starts on Monday.

Fixing the economy, including saving a $44 billion deal with the IMF, won’t be easy. Spending cuts could stoke unrest and he may face a logjam in Congress, where the defeated Peronists remain the largest single bloc.

“I think he can take us forward, but it will be difficult for him,” said sports coach Diego Carras, 36. “I think that the opposition is willing to do anything to not let him govern.”

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