Privatization or Cuts to Pensions? What’s Next For Argentina with Milei

Although Javier Milei has yet to assume his seat in the Casa Rosada, the libertarian economist and president-elect has indicated some elements of his economic program.

1) He said that the next few months “will be very hard,” in relation to unfriendly austerity measures.

2) He proposed that inflation will only drop considerably almost two years after the start of his administration (that is, by 2026).

3). He said specifically that some state companies will be privatized, such as YPF (Argentina’s state energy and gas company), Aerolíneas Argentinas, as well as public media; At the same time, he proposed a “Chilean-style” privatized public works model.

In this article, we will try to go point by point with the help of an economist.

Milei’s first contradiction

Without even having taken office, the leader of Liberty Advances already exposed a first contradiction in economic matters. Milei said that inflation will only go down in two years if we start to stop issuing money from day one. But if over the course of two years the emission is zero and inflation does not decrease, already points to the fact that there are other factors that determine inflation in our country.

“There are a series of twists and turns in his statements. One doesn’t know what to believe. The confirmed ministers are contradicting each other. Milei himself says that reducing inflation will take between 18 and 24 months. In that sense, he is telling you that the problem of inflation is not only the emission [of currency],” economist and CONICET researcher, Facundo Barrera Insua, told ARG Medios.

Surely, the fact of being tied to an immense debt like the one Mauricio Macri took on with the IMF back in 2018, is another of the points that conditions the lack of dollars and therefore, a sustained inflationary process in our country. Milei has not paid any attention or made any concrete proposals regarding this issue.

Six very hard months of austerity

The second point also uncovers a contradiction that could unleash a harsh social and political conflict, shortly after Javier Milei takes power. It has to do with the warnings about the “six very hard months” that will come for Argentina starting December 10.

From the libertarian philosophy, the adjustment has to be made “in politics”, that is, in the State. But the truth is that even reducing this spending to a minimum, the fiscal deficit of our economy would still be present. So, what do Milei and his people really propose to adjust?

“It is impossible to reduce the fiscal deficit by reducing the expenses that politics implies, this is equivalent to nothing more than 0.48% of our GDP. The big expenses of the State are salaries, pensions, social assistance and interest on the debt,” clarifies Barrera Insua.

-So if you need to make a big adjustment to reach a zero deficit…?

-Yes, you have to touch on retirements, social programs and State assistance -answers the member of the Society of Critical Economy.

For all this, it is expected that in the first days, the new government will attempt structural reforms. “They are going to try to go with a package of measures that have structural reforms,” considers the economist, something that – he assumes – “unfortunately is going to start a period of social conflict.”

To all this, the name to occupy the Ministry of Economy in the Milei government has not yet been announced. There lies the first internal disagreement with Macri, who wants to put people with more knowledge and experience working in the State.

What are “Chilean-style” public works?

Finally, we are going to focus on Milei’s proposal regarding reducing public works to zero and placing it in the hands of private capital. This model is applied in Chile, after several years of neoliberal governments. But how does it work and what are its risks?

The economist explains that – in case the new government decides to go that route – the State would open the game for different construction companies to compete for some works. The problem is that they will be oriented towards large public works and where, in addition, private companies could keep part of the profits.

“What Milei wants to do is divide public works into two: those that are not profitable and those that are. If you put out to tender the Néstor Kirchner gas pipeline, for example, it is likely that you will find a private party that ends up winning that tender and keeps part of the profits,” says Barrera.

Now, the second – and perhaps main problem – is that in this way, the smallest public works that play a fundamental role in cities and provinces are discarded.

“Making rural roads in the province of Buenos Aires, for example, I don’t think they are much of a private interest. Simply because it is not lucrative for them,” says the economist.

As if that were not enough, apart from these three central areas, Milei also threatened to repeal the Rental Law, to replace it with a negotiation mechanism between tenants and owners/real estate companies. Which cannot bring anything but conflict, because it will not be tied to any regulations and the tenants will be permanently in an unequal negotiating condition.

Today is November 22. Milei has not even taken office, but a future of permanent conflict is already foreseen in Argentina.