Argentina

Javier Milei will be the next president of Argentina

Javier Milei, the outsider candidate of La Libertad Avanza (“Freedom Advances”), who presents himself as anarcho-capitalist, defeated the current political force Peronism in the election last Sunday and will be the president of Argentina for the next 4 years. With the support of the prominent conservative politicians such as former president Mauricio Macri and former minister of security Patricia Bullrich and their respective voters, Javier Milei managed to win by 55.95% to 44.04% over Sergio Massa, outgoing minister of economy of Argentina, who conceded his defeat in the election night already ahead of the public release of the first results. The main challenge the next president will face is the ability to govern in a new political set up. He will have to successfully manage carrying out the structural reforms that the country must undertake in order to overcome the deep social and economic crisis in which it finds itself, including an inflation rate of over 140% and a poverty rate of over 40%.

The first challenge Javier Milei faces is the presidential transition, for which he will have to start a dialogue with the current Peronist president, Alberto Fernández. It remains to be seen which role Sergio Massa will play in this transition; he requested a leave of absence still during the election night and stated that all reactions to the election result will from now on be Milei’s responsibility. In addition, it is important to take into account the state of the country Milei will face on 10 December when he takes office. One of the main problems left by Peronism is the lack of transparency of public information and indicators of the country. It will be crucial for the president-elect to show the population in what – catastrophic – state the public accounts are and to state clearly what his government will have to do during his first months as president of Argentina. The last non-Peronist president, Mauricio Macri, failed to do that and both he and the country paid dearly for that timidity.

Undoubtedly, Argentina is facing a new political reality, with the emergence of a new political force, La Libertad Avanza, which managed to overturn the established political order and gain the presidency of the country. This profound change of the political order entails a great governance challenge for the next president due to the complex composition of the Congress.

Complex Composition of the Congress

The Congress is composed of the Chamber of Deputies and the Senate. The members of the former are national deputies, the members of the latter are representatives of the provinces and the federal capital. The Congress has far-reaching competencies in fiscal and monetary policy, international affairs and social welfare policies limiting the power of the president.

The Chamber of Deputies is composed of 257 members and in these elections 130 seats were renewed, of which La Libertad Avanza obtained only 35. If the support of the former president Mauricio Macri in the election for Milei is reflected in parliamentary support, at least 29 deputies of his conservative party, the PRO (Propuesta Republicana, “Republican Proposal”), could be added. And they could be joined by another 15 votes, who are part of the party founded by Mauricio Macri and have previously expressed their neutrality in the presidential definition. Congressman Ricardo López Murphy is also likely to support this block.

Taking into account that 129 deputies are needed to reach a majority in this Chamber, the sum of all the conservative blocks of Juntos por el Cambio (“Together for Change”) would give La Libertad Avanza a total of 132 seats, which would allow the approval of its reform projects in the event that all the deputies support its legislative initiatives. Peronism with Unión por la Patria (“Union for the Homeland”) will have 104 own votes as from 10 December, which could be 110 with the support of Frente Renovador de la Concordia Misionero (“Renewal Front”) (4), Juntos Somos Río Negro (“Together we are”) (1), and Movimiento Popular Neuquino (“People’s Movement”) (1). On the other hand, the Frente de Izquierda (“Workers’ Left Front”) has 5 seats that it will use depending on the legislative project at vote.

The Senate is composed by 72 members. In the Senate, Unión por la Patria has a majority block with 34 senators, to which three allies could be added, which would give them 37 votes, therefore a quorum and an absolute majority. La Libertad Avanza will have only 7 senators and will have to achieve the necessary consensus and support from the 23 members of the Juntos por el Cambio block (7 PRO, 14 Unión Cívica Radical (UCR, “Radical Civic Union”), 2 provincial allies) to have a quorum, therefore including the support from the UCR, who were the ones who did not expressively support Milei in the ballot.

First announcements of Javier Milei as president-elect

Javier Milei, in his speech on Sunday night after the electoral results were announced, called for national unity and invited leaders of other forces to join the reconstruction of the country. The role of the opposition is going to be key in this new political set up due to, as mentioned, the complex composition in Congress, and will require compromises from Milei, especially also due to the constitutionally mandated responsibility of the provinces in contested key political areas such as education and health.

Although Javier Milei's first statements after his election have been relatively moderate by his often rather eccentric standards, his campaign and former remarks regarding his envisaged government agenda generate wide uncertainty. The main questions to be asked are: Will the future president be able to carry out the structural reforms he is proposing? Will the hitherto dominant Peronist forces with their allies in the trade unions let him carry out his proposals?

Already the day after the elections, Milei made public the first names of ministers who will join him in the administration, and the incorporation of members of different groups (from the PRO and the Republican Peronism) would indicate a possible governability. It will be necessary to evaluate and see how willing the most corporatist sectors, such as trade unions and social groups, are to engage in a constructive dialogue with the new administration – and vice versa - or if there will be public confrontations and the risk of a further polarisation of the country.

The international relations of the next government are also an important factor to observe. It is widely expected that Diana Mondino, a liberal economist, will be in charge of the ministry which could play a constructive choice. On the other hand, Javier Milei's notorious links with right-wing leaders such as Donald Trump and Co, all of whom have effusively congratulated Milei, raise concerns about the future foreign policy stance of the new administration. In addition, Milei announced during his campaign that he plans to cut back political ties with Brazil and China as he “does not want to sit at a table with Communists”, and that Argentina under a president Milei would not join the BRICS group. Nevertheless, President Lula da Silva was one of the first to congratulate Milei on his victory. Milei was also critical about the Mercosur group, while he is in general supportive of free trade. For this reason, his stance on the EU-MERCOSUR Association Agreement is not yet clear. A clear positive line in foreign policy is that Milei as National Deputy has spoken in favour of Ukraine and in defence of Israel, repudiating Hamas terrorism.

High uncertainty of outlook, but positive initial market reactions

Considering the current economic and social crisis in Argentina, the presidential transition, the governance challenges of the next president and potential risks for international relations, Javier Milei's presidency generates uncertainty in Argentina and the world. The presidential transition and the first decisions to be taken by the future president need to be closely monitored. For one of the most difficult problems Milei will have to face, combating inflation, Milei already stated right after the election that he would require about 15-18 months to bring it down to “international levels”. Some of the planned institutional steps, in particular the abolition of the Central Bank and replacement of the Argentine peso by the US dollar ("dollarization"), are highly controversial from an economic as well as a practical perspective. Nevertheless, the initial financial market reactions after the election were positive with a lower than expected devaluation of the peso to the US dollar (minus ca 10% for the informal exchange rate “Blue Dollar”) and a double-digit surge in Argentinian stocks as well as rallying bonds. This demonstrates that investors, too, prefer the new unknown over the already-know disaster and hope that Milei will be able to apply successfully his comprehensive economic ideas including fostering growth, reducing public spending and executing a privatisation agenda to bring Argentina back to a path of economic dynamism, job creation and poverty alleviation.

Conclusion

The voters have rejected the status quo that has produced an economic crisis of the first magnitude. The challenge for the new government will be to implement a reform agenda while preserving and strengthening Argentina’s social fabric and its institutions of democratic participation and of the rule of law.