The Breakdown - A Primer on Argentina's New Pro-BTC President Javier Milei

Episode Date: November 21, 2023

Javier Milei has won the Argentine presidential election. What will it mean for the country's economy? Is he really as pro-Bitcoin as Twitter is making him out to be? NLW provides a primer. Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Monday, November 20th, and today we are talking about the winner of the Argentina elections. Dark Horse Libertarian pro-dollarization and maybe even pro-Bitcoin candidate, Javier Miele. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation. Come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, welcome back to the breakdown. Today, I am going to try to give background and context on the election of Javier Miele. If you have been on Bitcoin

Twitter at all, you have, I'm sure, seen tons and tons of tweets about it. And while I am by no stretch of the imagination, any sort of Argentina expert, it is a place that I've been a half dozen times. It's where I orange-pilled my father-in-law. It's a place where I have relationships with people who are in the crypto community locally. And anytime that something becomes a key narrative point, it's always worth investigating a little bit deeper. Now, on the flip side, media has made up its mind about Milay in some fairly dramatic ways as well. So hopefully this serves as a way to get an expansive point of view on this person who is now in this leadership position. So first, the details. Like I said, Javier Milay has won the Argentinian election to become the next president.

He gathered 55% of the vote, defeating incumbent economy minister Sergio Masa in the head-to-head runoff election. Massa has officially conceded in a speech, so peaceful transfer of power doesn't appear to be a major concern. Masa said during his speech, obviously the results are not what we expected. I have contacted Javier Miele to congratulate him. From tomorrow, the responsibility of providing certainty belongs to Mulei. Now, he is said to take office on December 10th, but there are some rumbling about a near immediate handover later this week. Of course, Mulei inherits a nation in crisis. Inflation is currently at 124% according to the last official numbers. The Argentine peso has been continuously devaluated over the past decade and appears to be on the brink of hyperinflation.

The official exchange rate has been slashed by two-thirds since the beginning of 2022, and the informal blue dollar rate has fared even worse over the same period. The blue dollar rate shows a peso devaluation of four-fifths relative to the U.S. dollar. Now, this unstable currency has caused a range of issues throughout the economy. Farmers have begun hoarding produce and are refusing to participate in export markets. Meanwhile, the poverty rate has quadrupled to 40% since 2021, according to World Bank statistics. Miele became recognizable as a television pundit before being elected as a parliamentary representative for Buenos Aires in 2021. In 2018, he was the most interviewed economists in Argentina making 235 appearances. Prior to that, he had a long career working for banks,

government bodies, and international economic organizations, including affiliation with the World Economic Forum. He has also held teaching positions in Argentina, and abroad as a professor of economics. Now, Miele's politics are staunchly libertarian. He advocates for hard money under a framework informed by the Austrian School of Economic Thought. Socially, he campaigned on a platform of loosening gun control and restricting access to abortion. But there's no doubt that Miele's main platform and the driving force of his election campaign was economic reform. Specifically, he championed the dollarization of Argentina as a solution for inflation. Alongside this policy, he pledged to abolish the Central Bank of Argentina and slash public spending.

To reinforce this message, Miele frequently appeared at rallies wielding a chainsaw, which became the symbol of his political movement to cut back the size of the state. According to Miele's advisor, Dario Epstein, however, the short-term goals are far more considered. Epstein said, The first thing we have to do is lower the fiscal deficit by five percentage points, which is not at all easy. As Argentina is in a very critical situation with 40 to 45 percent poverty, what we can't do is fire people from the public sector or lower social spending. That's very important. Now, Miele's frequent TV appearances were always controversial and designed to incite. In 2017, he called the Economic School of the University of Buenos Aires a, quote,

Marxist indoctrination center, and said it had led to the, quote, ubiquitous proliferation of Keynesian Brutes. Other appearances were far more direct. During an appearance on his birthday, he was offered a pinata of the central bank, which he gleefully destroyed with the stick. Now, Miele has been praised as a pro-Bitcoin politician, but his statements on the topic have been rather limited. To the extent that Miele is pro-Bikcoin, it's more in the context of understanding hard money principles and advocating for freedom to choose investments and savings. Earlier this year, Miele said, we have to understand that the central bank is a scam, a mechanism by which politicians cheat the good people with inflationary tax. What Bitcoin represents

is the return of money to its original creator, the private sector, and prevents politicians from robbing you through inflation. Now, to the extent then that we see pro-Bitcoin policy out of a Muley presidency, it's more likely to be in the form of removing capital controls rather than state involvement as we've seen in El Salvador. To put a fine point on it, Miele's focus, at least so far, is on the project of eliminating the central bank and dollarizing the economy,

rather than adopting Bitcoin as legal tender. Now, let's talk for a moment about the media characterization of Miele and see how true it might be. During the campaign, Western media has painted Melae as a dangerous right-wing populist in the same mold as Trump and former Brazilian president Bolsonaro. The Guardian called him erratic, playing up his unkempt hair and his supposed nickname El Loco, the manman.

Last month, the economist identified Miele as a libertarian anarcho-capitalist. They called his defeat of the, quote, sensible center-right option in the prior round of the election, quote, the worst of all possible outcomes. The New Yorker characterized Miele's rise as putting Argentina on, quote, the front ranks of the battle between democracy and autocracy that is currently sweeping much of the world. However, beyond breathless comparisons to Trump, coverage of the election has been forced to acknowledge the sentiment on the ground. There were numerous quotes from Mase's supporters and public sector workers who called

Miele's agenda scary. Beyond that, young voters who formed the core of Miele's supporters said the status quo had become so untenable that they were willing to vote for radical change. Augustina Lista, a 22-year-old student in BA, said, Our generation is pushing the presidency of Melae to stop our country being a pariah. Santiago Naria, a 34-year-old accountant, said, Miele is the only viable option so we do not end up in misery. Vox also spoke with Hernan Stucci, a 29-year-old food delivery driver who grew up as a far-left activist. He had switched to supporting Miele during this election instead of his prior political views, it was kind of innocence. It's not like us poor people ever stopped being poor.

Edriel Segura, a 19-year-old based in BA as well, said, I only have memories of Argentina in decay. So you look around and you associate all the political parties and all the movements that were in power during that time to a decaying country, and you desperately search for other options. Frederico Finkelstein, an Argentinian historian who studies right-wing populism, said the election result was an indictment of the failures of establishment politics. Speaking to Masa's defeat, he said, this is a failed government with a record level of inflation, and he is the minister for the economy. So people think, between a terrible thing and a crazy guy, let's go for crazy, because perhaps it's better than a terrible thing.

Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, what if? It invites fights people in instead of leaving them out. It's on 24-7-365 and moves at the speed of real life. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice.

Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, PVI, DBA, Cracken. Now, it's beyond the scope of this episode to go deep into the politics of Argentina. But one thing that's important to note is that this is more than a reaction to just the recent bout of inflation alone, although certainly that's what's pushed things over the edge. Instead, this is about the failure of an entire political class in the Peronists, and frankly, the previous opposition already having had a chance and not particularly changing

things either. The outgoing president Alberto Fernandez had chosen not to run for re-election after governing over-spirling inflation during his term. Following a pair of hyperinflations in the 1980s, Argentina's new peso was introduced in 1992. It was relatively stable until 2014, running between 4 and 10% inflation throughout that period. However, inflation accelerated during the end of the last decade and has now reached over 100%. The signals of discontent over the incumbent regime have been clear for some time. The past decade has seen multiple defeats for Fernandez's center-left-Jusili party. That party is the center of power for the Peronis political dynasty, which has held a stranglehold over Argentinian politics for most of the last 80 years,

interrupted by three military coups during that period. Now, however, in 2015, that party was voted out of favor by their major opposition, the Republican proposal. That party was elected on the basis of economic reform, but was largely ineffective in writing the ship, being expelled after one term. Fernandez was then elected president in 2019, bringing the original Peronist Align Party back into power, but the honeymoon was short-lived as Argentina's inflation continued to skyrocket. During the November 2021 parliamentary elections, with inflation over 50%, the Peronist faction lost control of the Senate for the first time in almost 40 years, dating back to the end of the last military regime.

The point of all of this is that the election of Miele can be viewed as not only the rejection of the incumbent government, but also of the opposition party and the entire political class in Argentina. So, Miele is, yes, rightly viewed as pushing for radical reform, but it of course needs to be understood in the context that incremental reforms that have been tried and very publicly failed for decades. Now, of course, anytime you have a firebrand candidate promising big sweeping changes come to power, the first question is, will they actually follow through? And indeed, just as usually happens, Miele's election win could ultimately prove far easier than having to follow through with one of the most ambitious policy reforms in recent Argentinian memory. Notably,

the idea of dollarizing the economy and abolishing the central bank will shake the foundations of political power within Argentina to its core. Even the more modest initial goal of reducing deficits could see left-wing protesters take to the street if they are viewed as undermining social programs which are propping up the poverty-ridden population. On top of that, Milay will begin his presidency with no meaningful coalition in parliament. His newly formed political party freedom advances controls only 38 of 257 seats in the lower house and eight of 72 Senate seats. That means, of course, that they will be dependent on reaching agreements with more moderate center-right parties to pass any legislation required for reforms. His main right-wing rival did pledge support ahead of this weekend's

election, but the alliance could be strained by the more radical elements of Miele's agenda. Juan Cruz-Diaz, the managing director of BA consulting firm Saffetus Group, said, Miele doesn't have a single governor, Muley doesn't have a single mayor, and his presence in Congress is extremely limited. He will face fierce resistance from social movements, so I'm not sure how likely major reforms are in the first two years." end quote. Then again, it's difficult to know how much resistance will remain from establishment political figures who have been thoroughly discredited over the recent years. While casting his vote on Sunday, Masa seemed to acknowledge the need for change, stating that we're starting a new chapter in

Argentina, and this chapter requires not only goodwill, intelligence, and capability, but above all, dialogue and the necessary consensus for our homeland to traverse a much more virtuous path in the future. Now, what about the real implications of his policies for Bitcoin, given that's why a lot of you are here. Even though Miele is unlikely to enact a radical Bitcoin agenda in Argentina, as we've seen in El Salvador, his policies could still be a significant boost to Bitcoin in South America. For example, the winding back of currency controls and more liberal trade policies could mean that Argentine citizens have far greater access to crypto as a choice for savings. Looking at the bigger picture, the formal dollarization of the Argentine economy could prove

to be a difficult task and require some out-of-the-box thinking. Argentina's central bank has already depleted their dollar reserve, so they will be of limited use during the process. For their part, the IMF appears to be on board with drastic measures, stating that there's no time for gradual policies. Bloomberg Latin America economist Adriana Dupita said, Miele's ambitious vision of a market-friendly small state dollarized Argentina will finally be put to the test. He is yet to clarify on timing and process for dollarization, which, with negative reserves, doesn't seem feasible in the near term. His ample victory gives him political capital to move ahead with his economic agenda, but doesn't shield him from the political cost from the

measures he needs to implement to make good on his promises. Daniel Kerner, Latin America Director at Eurasia Group said, a period of long uncertainty starts. Milay doesn't have a team and his plan is very difficult to implement. And he will have an opposition very mobilized from the beginning. Of course, how Bitcoin fits into this dollarization plan is anyone's guess. The current forecasts expect the process to be chaotic and likely running on an externally dictated timeline. With no meaningful dollar reserves remaining, another sharp devaluation in the peso is expected this week. And if inflation gets worse by the time Milay takes office, the money that is available could end up being needed to keep the economy operational. In that scenario,

would be using Bitcoin or stablecoins as an emergency currency of last resort, be something that they considered, it would broadly fit with Muley's ideology of free market money. Indeed, what's important to remember is that Muley's calls for dollarization were not about the state forcing people to choose the dollar, but rather acknowledging the truth that Argentine citizens had already a bet in the peso in favor of a black market dollar-based economy. And even without Bitcoin playing a formal role in the economy, it could simply act as a safe haven during what will no doubt be a tumultuous period. Now, let's talk some of our community's reactions. I'll start with an Alex Kruger caveat, who is, of course, from Argentina. Alex writes, Dear Crypto Twitter, to become Argentina

experts, you will need to spend some time in Argentina by its bureaucracy and get robbed at gunpoint or knife point at least once, knowing Miele's first name and what an empanata is does not suffice. He also wrote, Argentina has been dollarized for decades. Crypto has nothing to do with dollarization in Argentina. It simply empowers pre-existing demand from a small niche of tech-savvy people and traders. Glass node analyst Checkmati said, Argentina is certainly in for an interesting experiment. If Miele successfully migrates to a USD standard, we will witness the impact of a society moving from soft seashells to hard gold. One could argue that the magnitude of peso to dollar is akin to dollar to Bitcoin. Step one.

Fixed income investor William Slaughter wrote a long, thoughtful thread. If Miele can implement his program of massive fiscal and monetary austerity even short of dollarization, the result will likely be painful deflation, sovereign default, and recession bordering on depression. Argentina probably needs this, but it will end Miele's career at one term. Whether things turn out better than this depends on the large dollar savings Argentines hold abroad, 200 plus billion. If Muley is credible enough to encourage repatriation and reinvestment of these savings, there's a slim chance for mourning in Argentina. Wealthy Argentines at home and abroad are likely celebrating tonight. If they want Muley to succeed, they will need to put their dollar savings where their mouths are and be willing to

invest aggressively to build a new model Argentina. Argentinian marketing director at Blockstream Fernando Nikolik said, Miele's victory isn't just political. It's about a narrative of freedom, open commerce, and defending private property winning today. I don't think these Bitcoiners really understand how deep Argentina's cultural challenges run. This election is a massive first step in shifting mindsets, a fight for liberty that Miele has championed for years. His win is a clear signal that his ideas resonate wildly. So what to make of all of this? I think the point that many people are trying to make is that it's reductive to call this just a victory for a pro-Bitcoin politician. Although by the same token, I don't think that many people who are saying that on Twitter

are actually trying to reduce Miele and the complexity of Argentina's economy to Bitcoin fixes this, but instead just recognizing that it is a major moment to have yet another political leader come to power who does seem sympathetic to and interested in Bitcoin. When it comes to Western media's characterizations of Miele, it's not even necessarily that they are out and out wrong. What matters is that there is a huge context that gets left unexplored, and a situation of desperation that has made many people who probably don't agree with many, if not most, of Miele's positions, willing to give him a chance because some radical departure is needed. In short, it's a moment that could have significance far beyond Argentina's borders,

not just for Bitcoiners, but for many other geopolitical issues around the world, and so is one that's worth watching closely. For now, I want to say thanks one more time to my sponsor for today's show, Cracken. go to crackin.com slash the breakdown and see what crypto can be. And until next time, be safe and take care of each other. Peace.