During the first part of the last century, Argentina was among the top economies in the world with a level of prosperity that reflected the meaning of its name—the Land of Silver.
Following World War II, Argentina’s “silver” was eclipsed as it slipped into a form of socialism—“Peronism”—and a long period of poverty, but with the election of classical liberal economist Javier Milei as the nation’s new president, there are hopes that could be reversed.
Mr. Milei, who pursues economic liberalism and fiscal conservatism, advocated a system of small government. He has criticized communism and socialism as systems that caused poverty and has argued that the government should only be concerned with justice and security.
Mr. Milei will officially take office on Dec. 10 for a four-year term. Ahead of the election, he vowed to end decades of massive government spending, abolish the central bank, and implement policies such as switching to the dollar to end Argentina’s decline. Noteworthily, he also vowed to end cooperation with the Chinese Communist Party (CCP).
In a post on the X platform on Nov. 24, Mr. Milei said he had discussed issues such as adjusting Argentina’s fiscal policy and monetary program with Kristalina Georgieva, managing director of the International Monetary Fund (IMF).
He said the IMF expressed support and cooperation in “finding the structural solutions that Argentina needs.”
Socialist Decline
When Argentina is mentioned, soccer fans think of star Lionel Messi, while economists think of inflation.Inflation has become the norm in Argentina, with the current inflation rate close to 150 percent while more than 40 percent of the population lives in poverty. The economy is in recession, foreign exchange reserves are negative $10 billion, and the economy depends on a $44 billion IMF bailout loan program.
Simon Kuznets, winner of the Nobel Prize in Economics in 1971, has classified countries over the world into four categories from a unique economic perspective: the developed countries, the developing countries, Japan, and Argentina, with Japan and Argentina serving as textbook examples of how two political systems can lead to two different outcomes in economic development.
Japan, which lacked resources and energy, embraced U.S.-inspired constitutional democracy with liberty and human rights values after World War II and rose rapidly from the ashes of wartime to become one of the world’s top-developed countries, while Argentina, which was blessed with a wide range of economic resources, went from being a rich nation to one that is impoverished.
In 1946, as Juan Perón ascended to the seat of power in Argentina, he began implementing a state-led planned economy, later known as “Peronism.”
He labeled the participation of foreign capital in agricultural product exports as a self-seeking, inhumane economy and sought to break away from such an economic system. Consequently, he led the nation in “equitably distributing wealth among the 14 million people of Argentina” and progressively nationalized economic infrastructures and basic industries owned by foreign capital.
Soon after, these policies that disregarded operational efficiency led to stagnant economic growth, an expanded government fiscal deficit, depleted foreign exchange reserves, and a sharp devaluation of the Argentine peso.
Closure of Central Bank and Dollarization
Inflation in Argentina has been a significant issue since 2018, when an economic crisis hit that also resulted in the deprecation of the peso, accelerating the prices of imported goods.Although Argentina’s central bank has raised interest rates, this did not prevent prices from rising, and public discontent grew.
Against this backdrop, Mr. Milei campaigned to abolish the central bank, calling it “the worst garbage that exists on this Earth,” and called for dollarization.
On Nov. 24, Mr. Milei’s office stated on the X platform that the plan to shut down the Central Bank of Argentina was “non-negotiable,” which will see the country stepping into an unknown territory.
Tsuyoshi Ueno from the Nippon Life Fund Research Institute commented on the pros and cons of Argentina’s dollarization move in a recent article.
“Adopting the dollar has the advantage of no longer being troubled by exchange rate fluctuations, but it means giving up on national monetary policy and being completely subject to the decisions of the Federal Reserve. When the national economy is weak, the inability to lower interest rates poses significant disadvantages,” he wrote.
Mr. Ueno believes that the biggest risk of abolishing the central bank is that after losing the “lender of last resort” in the central bank, it will be impossible to rescue domestic private banks in trouble due to lack of funds, which could lead to the collapse of the financial system and economic recession.
In addition, Mr. Milei’s party is in the minority in Congress; as a result, “implementing policies requires joint efforts with other parties, and extreme measures such as dollarization and central bank abolition may be difficult to implement, “ Mr. Ueno said.
Ending Cooperation With Beijing
Unlike the outgoing president Alberto Fernández, who called communist China “a true friend,” Mr. Milei has stated bluntly that Argentina would no longer work with “communist” regimes, reportedly comparing the CCP to an “assassin” and saying the people of China were “not free.”Mr. Milei’s nominee for foreign minister, Diana Mondino, hinted at a possible “disengagement” with China, which is Argentina’s second-largest trading partner, when she said she would stop interacting with Beijing on trade issues, including “secret” deals between the two countries.
In addition, Mr. Milei has repeatedly opposed Argentina’s joining the intergovernmental organization BRICS—which comprises Brazil, Russia, India, China, and South Africa—stating,"Our geopolitical alignment is with the United States and Israel. That’s our international policy. We won’t align with communists.”
Mr. Milei’s statement about decoupling from China has been blocked by the CCP’s state media in China.
Mike Sun, a senior China investment strategy expert and consultant, told The Epoch Times that Mr. Milei’s overarching direction is certainly commendable.
“Argentina’s decision to cut ties with the CCP and embrace Western democracies is a crucial step forward and deserves to be recognized as a major development,” he said.
“High inflation, an economic downturn, and a desire for change have brought a bold political novice like Mr. Milei into the political arena. The fact that he has been so well received by the majority of the population, especially the younger generation, reflects the urgency of Argentine society to make a choice,” he said.
At the same time, he admitted that the economic policies advocated by Mr. Milei are extremely challenging.
Before World War II, Argentina had a strong economy, and its achievements were remarkable. After the war, the country’s leftward shift to socialism quickly plunged it into poverty.
Now, Argentina is again making a historic U-turn and returning to a traditional market economy, a move that has attracted the world’s attention, especially the many countries in South America that share the same experience as Argentina.
In an interview with The Epoch Times, Zhuge Mingyang, an independent writer, said that the public must clearly understand the dangers of socialism and communism and abandon it despite short-term pain.
“As an economist, it is impossible for Mr. Milei not to be aware of the risks and resistance to the reform,” he said.
Mr. Zhuge said Argentina’s socialist economic model brought disaster to the people, and regardless of the initial pain, its cutting ties with both such a model and the CCP will benefit Argentina and its people.
