How Are Milei’s Ambitious Plans Shaping Up?

Keeping up with the sweeping reforms Argentine President Javier Milei has sought to implement in his first two months as president has proven tricky. Southern Pulse breaks down the main policy issues we’re watching as the politician presses on with his plans.

Since his 10 December presidential inauguration, the economist and self-proclaimed “anarcho-capitalist” Javier Milei has wasted no time making good on his promise to implement libertarian policies as Argentina’s annual inflation rate remains above 250% — the highest level in 32 years.

Promising dramatic economic measures he calls “shock therapy ,” Milei quickly shifted from symbolically waving a chainsaw around during campaign rallies to introducing austerity measures that he openly warned would financially hurt Argentines before helping them. He spent his first weeks in office implementing measures including devaluing the peso by more than 50% and laying the groundwork to eliminate about 5,000 government employees. He also halved government ministries and secretariats, among other measures.

Now, experts are watching closely to see not only how quickly Milei’s policies could affect inflation in the short-term, but how the drastic measures will more broadly affect a society whose poverty rate is nearly 60% according to a Catholic University of Argentina estimation. Meanwhile, the president has already run up against roadblocks to implementing some of his sweeping proposals. Here’s a snapshot of the key policy issues Southern Pulse is watching as Milei starts the year, which we expect to progress quickly.

Economic and Labor Reforms

Milei has already implemented several reforms, but some have faced legal scrutiny and setbacks.

The first major test of Milei’s controversial policies came when the president issued a 21 December decree that included measures to weaken worker protections . However, a court ruled on 30 January that these reforms were unconstitutional, Bloomberg reported.

But other reforms set to affect businesses and individuals are still in play. Among them are planned cuts to transportation and energy subsidies, as well as cuts to provincial funding and the number of government ministries. Milei also eliminated price freezes on many household goods and lifted import controls , Bloomberg reported.

These cuts to transport and energy subsidies are expected to raise prices significantly. Some regional government officials expect bus and subway fares could rise by as much as 360% , the Financial Times reported.?

Milei has tried to push through his wide-ranging changes through two main methods: The so-called “omnibus” economic reform bill and an urgent “mega-decree” with hundreds of articles each. But his La Libertad Avanza (LLA) party has limited representation in Congress, and the sweeping reforms have suffered legal setbacks.??

While Argentina’s lower house voted to partly advance Milei’s so-called “omnibus” reform bill on 2 February, it was sent back days later to legislative committees. The version that had passed was significantly watered down, with the BBC reporting that Congress cut more than 660 articles to about 380.

Whether Milei will pursue another version of the sweeping bill remains to be seen, BBC reported, adding that an alternative strategy could be sending laws separately.

Another option could be that Milei would govern through plebiscites, the BBC reported . While these non-binding plebiscites cannot override Congress, Milei could use this method to get popular support for his reforms. However, this could backfire if Milei does not gain a majority.?

Meanwhile, Milei’s urgent “mega decree” is a separate measure that includes 366 articles aimed at economic, financial, administrative, and social reforms, among others. However, certain reforms — including those related to criminal matters, taxes, election reform, and political parties — could not be implemented via decree. So, Milei included many of those items in the omnibus bill.?

Like the omnibus proposal, this decree has run into issues. One of the most controversial aspects of the decree was a labor reform to weaken certain worker protections , such as lengthening the probation period for new hires from three to eight months, reducing severance, and allowing companies to fire employees taking part in protest blockades, the Associated Press reported . The proposed changes caused a widespread strike. A court later ruled the labor reform unconstitutional.?

Cabinet Reshuffling and Political Alliances

Two months after taking office with only half of the usual cabinet, Milei has already dismissed his first minister .

Milei fired Infrastructure Minister Guillermo Ferraro in late January, local outlets including La Nación and Clarín reported. Milei reportedly fired the minister after he allegedly shared comments the president made during a meeting. Milei allegedly said that he’d leave provincial governors “without a peso” if they didn’t support his omnibus bill.

Milei also reportedly asked two other high-ranking officials associated with groups opposing the omnibus bill to depart, according to local outlets including Infobae. These include Mining Secretary Flavia Royón and National Social Security Administration (ANSES) chief Osvaldo Giordano . Milei is expected to replace both officials but has not announced any appointments yet.?

Meanwhile, all eyes are on whether Milei’s La Libertad Avanza (LLA) party can forge a possible alliance with former president Mauricio Macri’s Propuesta Republicana (PRO) party. LLA only has 38 of 257 seats in Congress, while PRO has 37. While Milei and Macri have discussed the potential for an alliance , the idea has created a rift in the PRO party. Local outlet La Política Online reported that Karina Milei, the president’s sister whom he affectionately calls “The Boss,” became involved in the negotiation . The move has reportedly put the alliance’s future in question.?

How IMF Has Responded to Milei’s Policies?

One of the most-watched aspects of Milei’s presidency is his relationship with the International Monetary Fund (IMF), which recently approved a new USD4.7 billion disbursement for the country as part of its $44 billion loan program.

IMF Managing Director Kristalina Georgieva praised Milei, the Financial Times reported .

“The new administration has begun to take bold actions to restore macroeconomic stability and address many of the long-standing impediments to growth and investment,” the IMF said in a 1 February staff report issued days before the omnibus bill was sent back to committees. “These initial actions are starting to bear fruit, although the path to stability will be challenging.”?

However, the IMF report also noted challenges and risks , including Milei’s limited support in Congress.

“While the Milei administration arrives with a strong reform mandate, a fragmented Congress and a delicate social situation pose implementation challenges,” the staff report said.?

Meanwhile, Milei is in Washington, D.C. this week to speak at the Conservative Political Action Conference (CPAC). Former president Donald Trump and El Salvador’s President Nayib Bukele are also scheduled to speak at the event.?

YPF Privatization Off the Table For Now

Milei had talked about privatizing the state oil and gas company YPF, but Bloomberg reported that the measure was no longer on the table in the lighter version of the omnibus bill Milei modified to gain wider Congressional support. However, different congressional committees are expected to discuss that law again, including the YPF privatization measure.?

According to El País , Milei had a list of 47 companies he proposed privatizing that he had cut to 27. The state airline Aerolíneas Argentinas was still on the list, local outlet El Cronista reported .?

Milei appointed Tecpetrol’s former exploration and production chief Horacio Marín to lead YPF in November ahead of officially taking office.

Cristina Fernández de Kirchner’s left-wing administration nationalized YPF in 2012, which ended up being the subject of a New York court case in which Argentina’s largest state-run company was ordered to pay about $16 billion to Burford Capital and Eton Park. Argentina plans to appeal the decision in New York on 22 February.?

A 21 February article from Argentina’s national news agency Télam notes comments from Latam Advisors Regional Director Sebastián Maril, who told CNN Radio the appeal will be the first glimpse of Milei’s legal strategy and that the government will try to have the amount reduced.?

Does Milei Still Plan to Dollarize and Close the Central Bank?

Milei said he wanted to introduce the dollar as legal tender in Argentina on the campaign trail, as well as abolish the central bank . However, the president has underscored that these measures can only be implemented after his administration takes initial steps to stabilize the economy.?

The Financial Times reported in November that Milei seemed to have already backed away from the dollarization idea when his pick to run the central bank did not end up taking the position. His choice, economic history professor Emilio Ocampo, is considered the architect of the dollarization plan. He co-wrote a book on the subject that urges Argentina to implement the measure as soon as possible.?

Despite this, several local economists told local newspaper Página/12 in late December that the government has already started taking initial steps that could signal a path toward dollarization. Former economy minister Martín Guzmán also recently said that in his view, the dollar-denominated debt security BOPREAL marks the first step toward dollarization.?

Last month, Economy Minister Luis Caputo told reporters during the World Economic Forum meeting in Davos that stabilizing the economy, rather than closing the bank or dollarization, was the administration’s priority at the moment. “There is no rush,” he said, El Cronista reported .?

What’s Happening with the Hidrovía Paraguay-Paraná?

Another development Southern Pulse is watching closely is how Paraguay and Argentina plan to handle a dispute over a new toll for vessels transiting the Paraguay-Paraná Waterway. Argentina started enforcing a resolution in January 2023 for certain vessels to navigate a portion of the waterway, which it said would be used to pay Belgian maintenance subcontractor Jan de Nul.

Milei appointed Gastón Alejo Benvenuto as the new head of the Administración General de Puertos (AGP), the government body that administers the Argentine stretch of the waterway. Milei plans to call for a bidding process for companies interested in winning the concession to carry out maintenance tasks along the Argentine stretch of the waterway, which Jan de Nul is responsible for now.

Paraguay is hopeful that it will be able to negotiate the toll with Milei, although negotiations have been paused since he took office. The Paraguayan shipowners business union (CAFYM) said the toll could not be justified due to insufficient maintenance after performing an inspection of the Argentine stretch of the waterway in late 2023.

Are Milei’s Policies Working??

Whether Milei’s measures are successfully slowing inflation depends on who you ask, but it’s still early days for a president who has openly admitted that improving the economy would not be a quick or easy task.?

Argentina’s inflation slowed to 20.6% during Milei’s first full month in office, down from 25.5% in December. And yet, Milei called the figure “horrendous” despite coming in below estimates, Bloomberg reported. Prices were still up more than 250% from a year earlier, and it will take at least another month to identify whether inflation appears to be trending toward a slowdown.

But as Argentina’s society faces visibly growing hunger and higher prices for many goods and services, questions loom about how progress should be measured and to what extent the public is willing to embrace these reforms in hopes of a brighter future.

Whether it’s Argentina or elsewhere in Latin America, Southern Pulse has the experience, network, and relationships to simplify this challenging region with honest, direct answers to your most complicated questions.

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