The Argentinian economy has been a case study in macro-economics across most universities for being the only country in modern history to fall from rich to middle income status. Its current President Javier Milei, elected a year ago, has been on a rampage with radical reforms to curtail the role of the state and based on the results so far, will likely be a case study of its own. “The result has been better than almost anyone expected: inflation is down sharply, government spending is almost 30% lower in real terms….The JPMorgan country-risk index, an influential measure of the risk of default, has fallen from around 2,000 when he took office in December 2023 to about 750 now, its lowest level in five years. Despite huge spending cuts, Mr Milei is more popular with Argentines than his two predecessors were after their first year. In recent months, his popularity has risen.”
In this fairly long interview, Milei demonstrates his depth of macroeconomic understanding and conviction in his ideas to pull of what will likely be nothing short of a miracle. For those who prefer watching, you can hear him wax eloquent here.
Here are some excerpts:
On why his “contempt for the state is infinite”:
“First is there is a philosophical framework. That is, beyond the restrictions that one may have in the short term, I still consider the state to be a violent criminal organisation that lives from a coercive source of income called taxes, which are a remnant of slavery. The larger the size of the state, the more freedom and property are curtailed. Consequently, that is the north star. My anarcho-capitalist philosophy would imply the elimination of the state, but that is a theoretical, philosophical approach. In real life, let’s say, I am a minarchist. So, anything I can do to remove the interference of the state, I am going to do it.
Then there is the reality with which I am confronted. Argentina had a fiscal deficit of 15% of GDP. 5% was in the Treasury, 10% was in the Central Bank. And wholesale inflation was running at 54% monthly, something like 17,000% per year [annualised]. Therefore, if I did not do something very abrupt, I would end up in hyperinflation.”
On how his policies are likely to be replicated in other parts of the world, most notably in the US with Trump charging Elon Musk with the Department of Government Efficiency to reduce the role of the state:
“Elon Musk himself, …states that he is actively following the Argentine case. Besides, I gave him the contacts of our ministers. In fact, in Japan they are applying it now. The reality is that the idea of the outsider has entered.”
What expenditure is he exactly cutting:
“We reduced the structure of the state by half, we eliminated public works, we eliminated discretionary transfers to the provinces, we reduced public employees… we did not renew most of the expiring contracts. We also eliminated the intermediation in the management of social programmes.
That was very important at the beginning. We were able to double the funds received by families without increasing a single peso of public spending because we removed the intermediaries. That is not minor. People found themselves with double the resources without us spending a single peso more. We doubled in real terms the basic food basket [inaudible] which we cover 100%.”
The disintermediation sounds similar to our very own Direct Benefit Transfer, back home in India.
He defends Trump’s tariffs despite being a free market enthusiast:
“I make a big distinction between what Trump says and does versus how the media reports it. The most emblematic example was when he was president and he raised tariffs on China. That was not a measure of protectionism. That’s a misreading, not understanding how the world works. The world was coming from the subprime crisis, which in the literature was known as the “saving glut” problem. Another name for it was the global imbalance problem, which was China’s current account surplus, the United States’ current account imbalance and Europe neutral.
The fact that China had a fixed exchange rate meant that the United States was lax in its monetary policy and did not perceive it. When it did start to perceive it, it was too late. So, inexorably, this situation led to an appreciation of the Chinese currency. What is more, this appreciation of the Chinese currency, which did not take place in the euro, which was the currency used for arbitrage, generated internal problems within Europe. Those with high productivity, such as Germany and Holland, had to finance those with lower productivity.
So, when all the countries got together in 2008, that is when the G20 became politicised. Then, in that context, what happens is that China decides to partially appreciate its currency. That is, it does not go for a flexible exchange rate, but it appreciates it and that starts to correct the imbalances and the world comes out. Afterwards, the world started to try to dismantle the whole bailout package.
Then that stalled. So, what Trump said to China is “if you want to play by the rules of a big country you have to act like a big country. You can’t have a fixed exchange rate and be exporting imbalances.” So, China said no and then, Trump replied by raising tariffs.
So it’s not a problem of Trump being a protectionist, it is a problem of how he responds to Chinese policy, Chinese monetary policy, monetary policy change. It seems to me that one thing is how the economic policy works, another thing is what the media that despise Trump report.”
For those with deep interests in macro-economics, there’s plenty more in the interview which makes it a compelling read/watch.
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