The Daily - Can an ‘Anarcho-Capitalist’ President Save Argentina’s Economy?

Episode Date: December 11, 2023

Warning: this episode contains strong language.With Argentina again in the midst of an economic crisis, Argentine voters turned to Javier Milei, a far-right libertarian who has drawn comparisons to Donald J. Trump.Jack Nicas, who covers South America for The New York Times, discusses Argentina’s incoming president, and his radical plan to remake the country’s economy.Guest: Jack Nicas, the Brazil bureau chief for The New York Times.Background reading: Argentina’s incoming president is a libertarian economist whose brash style and embrace of conspiracy theories has parallels with those of Donald J. Trump.Argentina braces itself for an “anarcho-capitalist” in charge.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

From The New York Times, I'm Sabrina Tavernisi, and this is The Daily. Argentina, a poster child for economic dysfunction, is again in the midst of an acute crisis. Last month, fed up with liberal fixes, Argentines voted for the candidate promising to blow it all up. Today, my colleague Jack Nickus on Javier Millet, the right-wing populist now taking office in Argentina, and his radical plan to remake the country's economy. It's Monday, December 11th. Jack, it's nice to see you again. Thanks for having me. So we are talking today about Argentina and its new president, Javier Millay. He was inaugurated yesterday, and he's a pretty flamboyant and colorful populist,

kind of styled in the vein of Donald Trump. So tell me about this new president. Well, this was really one of the most surprising elections in Argentina's history. And from the start, the national conversation was dominated by Javier Millay. He spent years working as an economist and teaching economics, then was elected as a freshman congressman who really didn't show up to Congress much, but really became known

to Argentines for many years of TV punditry. He used to be brought onto these cable news talk shows to be the token conservative voice in a country that has, in recent years, been pretty left-leaning. And he really stood out for a combative style and opinions that are really outside of the mainstream. or a combative style and opinions that are really outside of the mainstream. El Papa es el representante del maligno en la tierra.

So, for example, he called the Pope a communist and the embodiment of evil. El Papa impulsa el comunismo. And bear in mind, the Pope is Argentine and a huge figure in the country. So this was really controversial. Empecemos por la verdad. No fueron 30.000 los desaparecidos. Son 8.753. controversial. And he's also suggested that the left has greatly exaggerated the number of disappearances or murders that occurred during the bloody military dictatorship in the 1970s and 1980s. And that struck a lot of people as a troubling sympathy for the country's authoritarian

past. He's argued that the right is aesthetically and intellectually superior than the left. He has said climate change is a socialist plot. And in the lead up to his elections, he was peddling baseless claims of voter fraud. But despite these unusual and to many worrisome politics, the thing that you need to understand about Argentina is that politics is really about economics. And Millet is the candidate promising a sharp break economically. Specifically, la obra pública, porque todo lo que hacen con obra pública es un robo descarado,

es un monumento a la corrupción. Specifically, he's pitching voters on a libertarian overhaul of government. And libertarian meaning? Meaning that he wants

to essentially kind of get the state to get out of the way. Ministerio de Educación, adoctrinamiento, afuera! Ministerio de Obras Públicas, afuera! Aunque te resistas. He's trying to argue that the state is predatory against the average citizen in its policies and taxes, etc.

And these libertarian views would really be a radical departure from what the government and what Argentina has had for decades, essentially. And so Malay's election victory showed how desperate voters are for change. So tell me about that desperation. Like, what was it that caused Argentines to elect this political newcomer with these extreme views? Well, I think anyone who has been vaguely paying attention to Argentina over the past several decades knows that they've been dealing with an economic crisis after economic crisis for a long time. And they're currently in one of their worst. And that's saying something for Argentina. Right now, annual inflation stands at above 140%. Wow. The Argentine peso has completely disintegrated in value, and just

more and more Argentines are falling into poverty. So what does 140% inflation look like? Give us a sense of that. Well, it's a situation where the value of the Argentine currency is constantly falling and prices are constantly going up. So it's a bit confusing to live in Argentina sometimes. I'll give you one example. When I was in Buenos Aires recently, I met this owner of a hardware store called Oscar Benitez. His store is this really lovely little,

kind of almost a tiny walk-in closet in a way, but covered in products. Screws and hinges and locks. But he doesn't know the price really of any of them. How long does it take to put all these prices together? No, no, I don't put them all together. I have 80,000 items. of any of them. Because of the fact that the pesos value is falling so quickly and prices are rising so quickly. And when someone wants to buy something, he has to go to his computer to look at a list that the supplier provides him, which is constantly updating with new prices.

So how often does he have to do this? which is constantly updating with new prices. So how often does he have to do this? ¿Con qué frecuencia, how often do you have to change the prices? ¿Con qué frecuencia tienes que cambiar el precio? Because even in the past two weeks... He said that those prices were changing sometimes several times a week. Wow. And how is he doing personally, his financial?

¿Y cómo te está yendo financieramente, personalmente? ¿Cómo va tu economía? He was depressed and, you know, kind of had a lot of gal's humor about the situation. I mean, he at one point called the Argentine peso used toilet paper. And as a result, he has tried to find ways to cope. What does he do when he gets money? Con lo que vendo, compro. He buys for? He doesn't tried to find ways to cope. What does he do when he gets money? Con lo que vendo, compro. He buys more.

He doesn't want to hold on to it. No, porque el peso no sirve. No, because the peso doesn't have any value. You know, when he gets pesos, he tries to get rid of them as quickly as possible so they don't lose any more value. So he either goes and buys more products and supplies, he has way more than he really needs, but he feels they hold value better than the peso, or he buys U.S. dollars. So he's basically trying to preserve the value of the money that he has

by going out and buying dollars. Exactly. And Argentines, for many years now, have flocked to dollar bills to hold their value, to save their money. As a result, more than $200 billion in hard U.S. currency is now in Argentina. And that means that on a per capita basis, Argentines hold more banknotes, U.S. banknotes, than Americans. In fact, anybody who has bought a house in Argentina will tell you that they almost certainly bought it in $100 bills. Okay, so Argentines have a lot of American

dollars, which is, of course, a bad sign for their economy. Reminds me a lot of Russia in the 1990s when also the ruble was just going wild and losing value. People used dollars to buy big, important things. At that time, it was a communist economy going into the global one. What is it here? What caused this in Argentina? Well, it's a long story, but the short story is that it's really just decades of deep economic mismanagement. A series of left-leaning governments has expanded the social safety net with things like free health care, free universities, a dramatic expansion of social programs, deep subsidies for energy and public transportation, big pensions, and all of that

without much economic revenue to pay for it. But to make up for that shortfall, they have drained economic reserves, they have taken out massive international debt, and also just printed more money. And that has left the peso much less valuable, and prices skyrocketing. Which brings us to Mr. Millet. So what are the specifics of what he's proposing, Jack? I mean, what's his economic plan exactly? Well, he wants to take Argentina in a completely different direction. So specifically, he wants to drastically shrink the size of government. He wants to eliminate 10 of the government's 18 ministries.

He has proposed privatizing the state airline, the railroad company, the state oil company, and really trying to remake the Argentine government and Argentina itself in his libertarian view of the world. And that also means some much more radical ideas. We'll be right back. Okay, so Malay is elected. He has this kind of Hail Mary plan to rescue the country's economy, including slashing all these government ministries and really taking a chainsaw, as he has, on spending. But there's something you said that's even more radical at the heart of his plan. What is it? So actually, the central part of his campaign pitch has been what we would call dollarization.

He essentially wants to use the U.S. dollar as Argentina's national currency. Use the U.S. dollar as Argentina's national currency. How would that work? So basically his argument is that the Argentine government has shown to be so irresponsible in its management of the currency and the Argentine peso has become so worthless, you might as well just kill it and use a more stable currency, you know, specifically like the dollar. And he chose the dollar because Argentina is already kind of dollarized. I mean, we spoke about how people buy houses with U.S. dollars. They stash U.S. dollars under their floorboards and their mattresses. So this is a country that is

already deeply comfortable with the U.S. dollar and is already using a lot of U.S. dollars. And so he basically wants to formalize that. And is this a thing? I mean, have countries done this before? It is. There are more than 30 countries that have actually adopted another nation's currency as their own legal tender. And in Latin America specifically, there have been a few cases of dollarization. Panama has dollarized, Ecuador. And so this is not a completely novel idea, but Argentina is a larger and more sophisticated economy than those other nations. Okay, so dollarization has been done, though in smaller Latin American countries. But what are the mechanics of it? How does it work? So how to do it is relatively simple,

in theory. First, the country must agree upon an exchange rate for its currency to the dollar. And then the country, on a specified date, essentially flips the switch. And all of its obligations, things like contracts and deposits and loans and wages, are all converted to dollars on paper at that agreed-upon rate. And then there is another part, which is potentially more tricky, particularly for Argentina. And that is converting all of Argentine's pesos, the physical banknotes, to physical U.S. dollars. And for that, you need dollars. So mainstream economists believe that the government may need up to 30 to 40 billions to dollarize.

And that could be a big problem for Millet and his plans. If you consider their debts, they basically have zero. So Argentines like Oscar, the hardware store owner, they might have a lot of dollars, but what you're saying is that the government itself does not. Exactly. And one risk is that if the government doesn't have enough dollars, it may not give Argentines much confidence in a dollarization scheme. So for instance, if you're an Argentine and you see in your bank account that the government has now suddenly converted your pesos to dollars, but you're skeptical that the government

actually has enough dollars for everyone, maybe you're going to go to the bank and take that money out before your neighbor does. And if the next person does that, and then the next person does that, now we have a run on the banks. Wow. So a lot of hurdles here. I mean, they need dollars to dollarize. They don't have them. And then there's a chance that when people see what's happening, they panic, they race to the banks, and they take their money out, causing a real crisis in the financial system. Exactly. So there are some real crisis in the financial system. Exactly.

So there are some real hurdles and some real risks. But there is also a competing view that there could be real benefits. We have seen dollarization really almost eliminate inflation in the past. And on top of that, in a place like Argentina, where there is $200 billion in U.S. currency stuffed under mattresses and in safe deposit boxes, dollarization could bring those dollars from under mattresses and into banks officially, and that could be a real benefit for the economy. So there's a real question about whether his

signature policy, you know, this dollarization would actually work even if he could pull it off. But I guess the question in my mind, you know, since he's now, of course, in office as of today, is can he pull it off? Like, you know, he has these ideas that were electric for people in Argentina, for voters, but can he implement them? Well, I think that's another major hurdle to his plan for dollarization. Because remember, Millet is a total political outsider. He's coming in with no governing experience. And his nascent political party, just two years old, has just 15% of the seats in the House. And something like dollarization would need congressional approval. So what we've seen since the election is actually a bit of dealmaking. He has actually started to make deals with a

center-right coalition, which would give him potential control of Congress. But as a result, he has brought in more moderate members into his cabinet. And his focus in recent weeks has really shifted from things like dollarization to more about his plans to shrink the size of government and budget cuts. And I think what we're seeing is Millet is confronting the political and economic reality as president of Argentina, and dollarization may be something he does down the road. So this is a case where Millet campaigns as an outsider with these radical plans, but the political realities force him to moderate those plans once he's in office. Well, I think we should remember that what Millet is proposing for right now for Argentina

is actually rather radical, particularly when considering Argentina's history. These would be very, very deep government budget cuts. And this is a country where many people have come to rely upon government services and subsidies. And so these policies could be really difficult. And this is a country where many people have come to rely upon government services and subsidies. And so these policies could be really difficult. And remember, this is a country that is already struggling with a deep economic crisis. So poverty is already up, hunger is already up, and that could get worse. And Millet has actually warned the next year is going to be very tough. But on the other side, this is actually what some economists think Argentina should have been doing a long time ago.

You know, they actually need some of this hard medicine. But we don't know how it's going to play out in reality. So in other words, the Hail Mary that Argentines went for in this election, it may in fact be the medicine that the ailing economy needs. But the application of that medicine, it's going to be very difficult to swallow. Have Argentines considered that the cure could feel as bad as the disease?

I think that's a major risk. Millet is a radically libertarian president who has an avowed hatred for the government, who is now in charge of what has for many years been a very big government. And he's made clear that starting this week, his plans to shrink that government will be really painful for the country. And so that means that a populace that's already suffering so much economically is now being told that they're going to have to suffer a lot more before it gets any better. So the question is, will Argentines put up with that? And whether or not they do may decide, after so many years of struggle,

whether Argentina can finally right its course. Jack, thank you. Thank you. On Sunday, after being sworn into office, President Milley addressed thousands of his supporters in the Argentine capital of Buenos Aires. In the speech, Milley laid the responsibility for the country's economic problems at the feet of the outgoing administration and promised to take the, quote,

necessary decisions to solve them. Soon after, in his first official decree, the new president cut the number of government ministries from 18 to 9. We'll be right back. Here's what else to know today. Over the weekend, prominent Democrats moved to denounce anti-Semitism in the wake of a growing scandal that saw the president of the University of Pennsylvania resign after giving testimony to Congress last week.

We shouldn't have to gather on a rainy day in Pennsylvania to talk about anti-Semitism, but we must. Appearing at a synagogue in Philadelphia, Senator Bob Casey of Pennsylvania and the state's governor, Josh Shapiro, made the show of solidarity just one day after the resignation of the university president, Elizabeth McGill. McGill's departure followed days of pressure from donors, political leaders, and alumni who had criticized remarks she made to Congress that appeared to evade the question of whether students who called for the genocide of Jews should be punished.

The presidents of Harvard and MIT made similar remarks to Congress last week and are now also under pressure to resign. And European Union policymakers agreed late last week to a sweeping new law to regulate artificial intelligence, one of the world's first comprehensive attempts to limit the use of a rapidly evolving technology. The law, called the AI Act, sets a benchmark for countries seeking to harness the potential benefits of the technology while trying to protect against the possible risks, like automating jobs, spreading misinformation online, and endangering national security.

Today's episode was produced by Carlos Prieto, Rochelle Banja, and Stella Tan. It was edited by MJ Davis-Lynn and Mark George, fact-checked by Susan Lee, contains original music by Marian Lozano and Dan Powell, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Lansford of Wonderly. That's it for The Daily. I'm Sabrina Tavernisi. See you tomorrow.