Milei One Year On

Alberto Fernández awarding Milei the presidential scepter during the inauguration on 10 December 2023

Javier Milei, Argentina’s President, has been leading the country for a year now. So, let’s review what he has been able to accomplish in that time.

Milei is looking to overhaul the country’s economy after decades of mismanagement under Peronism. He’s tackled inflation, but eliminating Argentina’s dominant socio-political-economic system has increased poverty. Economic recovery and wealth generation take time, so we’ll continue to watch how this evolves.

Argentina has all the natural resources and geography to be successful, but years of Peronism and the recent drought have made a recovery difficult. Foreign investors are showing optimism, but true progress will only come once Argentina can begin to generate its own capital. Argentina has strong bones, but adding meat to those bones is going to be a long process.

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Transcript

Hey everybody. Good morning, Peter Zeihan here, coming to you from near the head of Matthew Key to Key West, Mateu key to Key Valley and Mount Aspiring National Park. We’re going to pan around a lot on this one. It’s going to take a quest. Oh, yeah. New Zealand obviously. Going to take a question from the Patreon page that I’ve been getting a lot and it’s what do I think of the president of Argentina, Melaye, who has been going through a series of reforms. 

It’s been a year now since he took over. And when I said it a year ago, he’s like, he’s got a lot of work ahead of him and we’re not going to see results soon that people are looking for an update. And the update is he’s got a lot of work in front of him, and we’re not going to see results soon. 

Let’s talk about the good things that have happened that are his, that he should get credit for, and the good things are about to happen, then he probably shouldn’t. And then we’ll go into the other stuff. So first things first. Last year was really bad for growth in Argentina, Argentina because of its old government system. Peronism, has a horrible economy and it shouldn’t. 

The Argentine system has naturally having waterways overlaying great arable land. In fact, the second largest chunk of those two things combined in the world after North America. It should be a superpower. And at the turn of the previous century, actually at the end of World War one, it was the fourth richest economy in the world. And now it’s back then it was maybe 90% of the wealth of the United States, per capita. 

Now it’s less than 30%. The reason is we had this guy come in in the late 40s and ruling until about 55 by the name of Peron, who formed a new type of political, economic ideology that combines the worst aspects of fascism and socialism, where the government owns all kinds of things and runs them badly and into the ground. 

And whoever gets political power can basically do whatever they want. But they also control the labor unions, and all the, the export system. And there’s a lot of other messy things going on. It’s, it’s kind of a nonsensical ideology, but it is the dominant ideology of Argentina, and it has systematically destroyed the ability of the country to generate capital and wealth. 

Instead they do oversimplification here. They concentrate power in the hands of a few people within the political class and then print a lot of currency to artificially increase demand for their supporters. So everyone feels rich, which only generates hyperinflation. So Melaye came in and tried to rip all of this up from the roots, and considering he didn’t have majority in Congress, that was kind of a heavy carry. 

But he did a pretty good job and that artificial demand is now gone. And so inflation has gotten back down to more normal levels. And he absolutely deserves all the credit for that. The other side of that, unfortunately, is that when most of the country, at least half of it is thriving on that sort of system where the government throws money into the system to generate that artificial demand, and then the money goes away, the demand goes away that, yes, that takes care of inflation, but it puts a lot of people into poverty. 

So when it comes to things like poverty, amelioration and generating the sort of economic activity at home that is necessary to then use a more capitalist structure to bring wealth back. And that takes a lot more than a year. And we’re only in the very early stages of it. Second, things are going to get better for Argentina this year, independent of malaise reforms. 

Last year there was a drought. Argentina is primarily. That’s a key, right there. It’s, Argentina is primarily a commodities producer, especially soy. And there were droughts last year. So we saw a significant contraction in the primary extraction economy. It looks like the weather forecast coming up for the next year looking to be positive. So simply a return to the median for agricultural production is going to generate pretty strong growth. 

But what we really need to see is capital start getting generated at home. Now, foreign investors are starting to express more optimism in what Malaya is doing, and they’re starting to buy up Argentinian government bonds again. But we’ve been in this cycle before where you get a reformist government that tries to fix a few things, make some progress foreign to start to come back in and you get another Peronist government that comes in and wrecks it all again. 

A little word of caution. Until such time as Argentina is generating its own capital and until such time as Millais or someone like him can actually win more than one term in a row, it’s really hard to say that Argentina has emerged from its funk. If it can pull that off, it’s going to be doing very, very well because the bones are very good. 

And I would just put a little bit of caution in there for anyone who’s trying to compare Argentinian politics to anywhere else. For example, there’s a lot of people in the United States, who are in the Trump field who look at Millais and how he’s kind of taking the ax to the government and they say, oh, yeah, we should do that. 

Keep in mind that most of what Donald Trump says he wants to do actually has more in common with Peron when it comes to centralization of control, especially when it comes to things like labor, than it does with Millais, who is more of a libertarian. So, you know, there are lessons here. We should study it, but we shouldn’t get crazy with what sort of parallels we try to draw. 

Oh, and one more thing, because I know people are going to ask. Careful. The parallels you draw between what’s going on in Argentina now and really anywhere else, especially the United States. The U.S. and Argentina may have similar geographies, but their political systems diverged a long time ago. So, for example, there are folks in the Trump campaign who are looking at L.A. and him taking an ax to the state as something that they would like to do in the United States. 

But there is no stomach for that in Donald Trump at all, because that would mean going after the single largest budget items. And those are entitlements Medicare, Medicaid, Social Security, and maybe, maybe even defense. If you don’t take an ax to those four things, you’re not going to make any meaningful progress. In fact, under Donald Trump, we went the opposite direction. 

When he was president, we had the largest budget deficits in American history in peacetime, a feat that was admittedly, topped under, Joe Biden. But if Trump does what he says he’s going to do, and he’s going to reclaim that mantle in the very near future, so think of, when it comes to the centralization of power, that’s really what Cronin is about. 

And that is something that both Biden and Trump exercised. I would argue that they are the two most Peronist presidents. The United States has ever had. And, Argentina is led not by a conservative. It’s led by a libertarian. O’Malley would not fit in with the American Republican Party of today or yesterday at all. The two countries are moving in different directions, with Argentina moving away from Peru, Amazon and the United States moving towards it.

Argentina, After America

FOR MORE ON THE FUTURE OF Argentina, SEE DISUNITED NATIONS

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The Accidental Superpower: Ten Years On

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Next up in our ‘Post-America’ series is Argentina. I’m pretty optimistic about Argentina’s future…they just need to get out of their own way.

Between its abundant arable land, large shale industry and lack of any real strategic threats, Argentina is poised to be a significant regional power. Given Brazil’s dependency on international markets and trade, Argentina may look even better if the rest of the neighborhood has a shake-up.

Sure, Argentina has some hurdles to jump over. The mounting levels of debt will have to be sorted out(or, more likely, magically disappear with little to no consequence), and the political system will need to be revamped. Despite all of that, I’m still expecting Argentina to emerge as a major power in South America as we enter a deglobalized world.

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First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

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TranscripT

Hey everyone. Peter Zeihan here coming to you from just below Deming Peak in the Eagle’s Nest Wilderness. Today, we’re going to look at another one of our post-American series, What Parts of the World are gonna get really interesting when the United States really takes a big step back? And today we’re talking talk about the southern cone of South America, specifically Argentina.

Now, for those of you have read this, United Nations, you know that I’m pretty bullish on Argentina’s future. Grows all the food that it needs. It’s got arable land without irrigation. It’s got a fairly sizable shale industry, third largest in the world, if you can believe that. And despite their own ideological hang ups, it’s broadly functional in that regard.

No one’s going to starve in Argentina. No one’s going to run out of food. And because they’re at the southern end of South America, they really don’t have any military threats to speak of. I mean, yeah, yeah, yeah, yeah. There’s the Falklands Island crap, which is just imperialism and anti-imperialism offshore doesn’t really affect the math in Argentina at all.

Also, the Brits right now can’t do anything without the United States, you know. Now, where was I? Oh, yeah. As the United States pulls back, trade is going to be a lot harder to come by as the global demographic, especially in the rich world, advances, capital is going to become harder to come by. And for Argentina, this is just a normal Tuesday.

Now, a country that is near them, Brazil is one that is absolutely dependent upon international trade, absolutely dependent on international technology and especially capital. So I can absolutely see Brazil’s fortunes tanking in the next couple of decades, not because they’ve done necessarily anything wrong, but because the environment that has allowed them to flourish these last 30 years is gone.

I mean, think about what we’ve had. We’ve had bottomless supplies of global capital. We’ve had a price insensitive Chinese who will buy up any commodity that is available. And in that environment, high cost producers like Brazil can do really well. But that’s not the normal state of affairs. The normal state of affairs is capital is hard to come by.

And trade is so much circumspect in that environment. Argentina is very, very well set up for the future. The question is what happens in Argentina’s neighborhood now, as Brazil falters? There are going to be splits within the Brazilian nation with some provinces realizing that as long as they’re attached to the poorer provinces, they can’t function. They’re at a detriment.

And Brazil, unlike the United States or Argentina, is more of a confederal political system, where the provinces have, in many cases, more power than the national government in Brasilia, which is a long way away and way up north in the rainforest. So I can see a circumstance in the not too distant future where a number of Brazil’s southern, more temperate provinces, which are more economically viable, which have more stable population structures and better infrastructure, find ways to loosen the ties that bind to the rest of Brazil.

The question is, what is Argentina do in those circumstances? Does it see this as an expansion opportunity? Does it see this as an opportunity to build a series of buffer states? Honestly, it will be up to the Argentineans as to what goes here, because the Brazilians are not going to have the military or cultural power to fight back.

Now, no one in Argentina is thinking along these lines at the moment, but as the world changes around Argentina, these thoughts are going to come to the surface. This is going to be a conversation they’re going to have to have. Not today, not tomorrow, but probably in the 2030s. And if you want to bring up the Falklands again, there is no circumstance.

I can imagine in the 2013 and 2040s where the Brits are able to independently project power that far south. This is not me telling Buenos Aires just to buy your time and you’re going to be able to take it. But it does suggest that when the environment changes, it all will. I can’t believe I talked about Argentina without bringing up the debt issue.

Okay, so Argentina is a very highly indebted country, not because it doesn’t have income, but because it can’t do math. The country regularly takes out huge loans. That has very little intention of repaying. And oftentimes as soon as you get a government shift, then they go into default. They’ve done this like 14 times, I think, in the last century and a half, and they are probably gonna do it again in the next decade.

And no, I don’t think that this is going to overall change my view of the trajectory of the country. Because in a world where international law breaks down and international debts aren’t going to be worth very much unless you can get there with a gunboat to enforce them. And no one can really do that for Argentina because it’s too far away.

So again, I’m not saying that the Argentineans should just default on everything, but in the time they’re going to default on everything, what does that mean for the political situation? The dominant political strain in Argentina is something called Peron ism, which was built by a guy named Peron, and it basically combines the dumbest, most economically nonfunctional, most politically divisive aspects of socialism with a very sloppy version of fascism.

Basically, you get a leader who castigates anyone who doesn’t believe what he thinks at any given time as an enemy of the state and use the tools of power of the state to prosecute them, while at the same time grabbing money from wherever he can to slap it servers politically useful to him. Now, if this sounds familiar to those United States, I basically just describe Trumpism.

If Trumpism becomes the dominant ideology of the United States, we’re not going to turn to the Nazi Germany. The Trump aren’t nearly that organized. We’ll turn into Argentina. Now, that doesn’t mean that the country will die or anything, but it will get economically wrecked. The Argentineans have been going down this path now for about a century, and at the time that Peron did his thing, Argentine there wasn’t that much less well-off than the United States.

In fact, right after World War One, Argentina, by in per capita terms, was the fourth richest country in the world. They’re still there. They’re still in the upper end of the developing world, but they’re nowhere near the leading light anymore. So for those of you who can do math or read maps, look at Argentina a little bit. Look at their history a little bit.

Look at their economics a little bit. And that is a potential future for the United States. Not what I’m recommending, but we’ve seen exactly how this sort of political system corrodes rule of law makes risk taking and entrepreneurship dangerous, and overall leads to instability politically and economically. It’s not a good mix, but you have to view things in their neighborhood.

So in the case of Argentina, even if they continue down this path and I don’t see any reason why they wouldn’t, it’s still in a better position than Brazil and in the future that we’re going to. It’s all about what you look like in your neighborhood. Okay. That’s it for real this time. But.

Breaking New Ground in Argentina

The Accidental Superpower: Ten Years On

With a new “10 years later” epilogue for every chapter, comes an eye-opening assessment of American power and deglobalization in the bestselling tradition of The World is Flat and The Next 100 Years.

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The new Argentine president, Javier Milei,  is getting right down to business. It’s only his first week on the job, and he’s already cut government ministries in half, dismissed public officials, halted public works, and devalued the currency by 50%.

On paper, the goal of all this is to add some stability to the Argentine economy and eventually dollarize it. This won’t be an easy process, but it’s an opportunity to overcome the economic struggles linked to Peronism and begin to recognize Argentina’s full potential.

If Milei proves to be successful, Argentina could become the model for countries attaching themselves to more stable currencies or economies in an effort to ditch their soft currencies.

Prefer to read the transcript? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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TranscripT

Hey everybody. Good morning from chilly colorado. The news today is that the Argentine government and its new president, Javier Milei, it has launched with a gusto in their first wave of reforms in the first week on the job. They’re cutting the number of government ministries by half. They’re firing a lot of public service officials. They’ve stopped all public works projects until the budget stabilizes, and they have already devalued the currency by 50%.

Nominally, the goal here is to get to a more stable situation where the country has a little spare cash. You can buy up dollars on the international market and then buy out with those dollars every single peso in circulation so that the country can dollarized. And in theory being that future governments then will be forced to actually act within their means, cause a massive budget deficit.

And the previous government has been printing currency like mad and leading to hyperinflation. And I think it’s something like 40% of the population of Argentina is in poverty. Now, two reasons of this matters. Number one, Argentina is a country that I expected to be doing fairly well in the future, not because of its government, because of its geography and demography.

It has a larger proportion of young people than almost any country, not just in its pure class, but in the entire advanced, developing, middle, developing. And of course, the advanced world. So a lot of the problems that everyone was dealing with with, say, pensions as mass retirements hit the workforce, it just doesn’t apply in Argentina at all and it won’t for decades.

Second, Argentina has got a pretty sweet spot on the planet. It’s got great arable land, great navigable rivers, pretty good infrastructure. Its educational system is top notch. They are arguably the most skilled country for their pure class as well. The problem has always been Peronism and the government. Now, if Malé can fix a few things, then great. But I think the other reason to look at this is in the world we’re moving to as it globalized is, a lot of countries are going to be watching the Argentinean experience very closely, not because they have a similar political culture or geography or economy, but because as trade breaks down, the ability of countries to maintain soft

currencies at all is going to be somewhat limited. And the past for Argentina with hyperinflation, government intervention, massive intrusion of the economy, authoritarian systems and printing currency, a lot more of that is going to happen. And the more logical path for countries who decide that they don’t want to be destitute in economic basket cases will be to attach themselves to a more potent country with a more stable currency regime and economic structure.

And that means doing something like dollarized Nation. Although it doesn’t have to be the dollar, it could be the yen, it could be the rupee, it could be the pound. You know, there are other options out there. But this sort of cold seen into currency blocks and trading blocks and security blocks is the most likely outcome of all of this.

So I’ll be watching Argentina very, very closely to see what they get right, see what they get wrong, see if this is a beautiful experiment or a beautiful disaster. It’s just way too early to know right now. What we do know for sure is that the Argentines system before Millay was broken. We will now find out if it’s broken beyond repair.

 

Dollarizing Argentina: Run-Off Elections Between Massa and Milei

Today, we’re turning our attention to Argentina’s upcoming run-off presidential election between current economic minister Sergio Massa and libertarian candidate Javier Milei. I could do a whole series on the effects of Peronism, but this time, I’ll be focusing on Milei’s proposed dollarization program.

Argentina has defaulted on its national debt nine times, and the government can manipulate events (and people) by hitting the peso printing button. Switching to the American dollar would institute some financial responsibility, but is it feasible?

Milei would need to come up with a metric-shit-ton of US dollars for this to work, but we’re still ignoring the impact on banking stability and the risk of hyperinflation. I’m not quite sold on the idea just yet, but let’s see who gets put in office before we go further down that rabbit hole.

Prefer to read the transcript? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Transcript

Hey everybody. Peter Zeihan here coming to you from Boston Harbor. The news over the weekend was that in Argentina, we had our first round presidential contest and the two finalists who will compete in the first weekend of November are a guy from the ruling party, the protest. He’s the economy minister and a guy from the libertarian field, which is Javier Malay.

And apologies if I got that name right. If you win, I’ll learn to pronounce your name. Just ask Birdie Mohammed off of Turkmenistan. Okay, let’s see what to say. Malays. Big thing is that he wants to do away with the Argentinean peso and institute a dollarization program. Three big things for us. Number one, this is more than just some financial chicanery.

This has really real implications for the Argentineans, as well as everybody else in the neighborhood, because the financial strategies of the protests are a little wackadoo. Peronism is a very nonstandard, political and economic ideology, and it combines things the worst aspects of Venezuelan socialism with corporate Nazi ism. So basically under a cult of personality on top of that.

So if you can imagine AOC of the squad and of the American Congress, you know, one of those really, really, really left wing weirdos having a lovechild with Donald Trump. I mean, it would be an ugly, ugly, ugly, hideous child. But that’s basically what Peronism is. And among other things, it’s heavily unionized. But the government represents the unions, and it believes that the government should be able to print currency and any volume to pay for everything so long as you’re a political ally.

Needless to say, this has gotten Argentina into a lot of financial trouble over the last century. They’ve defaulted on their debt, I think nine times, and it should be a very successful country based on their demographics and the geography. But policy keeps getting in the way. So if you’re an American who thinks that you can do no wrong.

Bear in mind that if you wake up every day for decades, just try to wreck everything you can eventually become Argentina. So there is a limit to what we can get away with now with that kind of in your back pocket. Let’s talk about the impacts here. If dollarization worked, it would destroy the ability of the proneness or really any government in Argentina to use their central bank and their currency in order to manipulate events.

And that is honestly the idea here that Melaye has is this if we can wreck their ability to do what they’ve been doing these last 90 years, then that entire political ideology will die on the vine because they’ll actually have to then balance the books and do things like have petitions, responsibility. And in that sort of environment, people who can do math are going to do better than people who cannot do math.

So this is there’s more at stake here than simply having a balanced budget is about eliminating what has been the dominant ideology of the country has been very, very damaging for generations. But to number two, it’s not easy. The first step to erasing the economy is to remove all the pesos from circulation. And that means that the Argentine government under Melaye would have to go out and get a lot of U.S. dollars to buy back all the currency.

And the government is completely broke. One of the reasons why the Peruvians are printing currency like mad. So the first thing they would have to do is come up with billions and billions and billions of dollars in order to buy up all the old currency. Now, doing that is beyond the government’s capacity right now, unless they do a mass devaluation and if they devalue the peso by at least, say, three quarters.

So make it worth at most 20 to 25% of what it’s worth. Now. Then the number of dollars that you need would be significantly less. So in order to stop the budget largesse and the hyper inflation that comes from that, the first step would be to trigger hyperinflation. Needless to say, that would have not just economic but political outcomes.

So not something that could be done easily, lightly or without consequences. Which brings us to the third thing, whether or not it would even work. The whole idea of dollarization in the handful of countries that have done it is they believe that their institutions are not sufficiently responsible to be granted independent monetary policy and control over printing press.

So by doing away with that completely, basically ending the central bank, you then have a system where everyone is beholden to a much more responsible monetary regimen that of the United States. You know, you can cue the laughter for those of you who are gold bugs out there. The issue with this is that there’s more things that the central bank does and just regulate the currency.

There are also the lender of last resort. They’re also the regulator for the banking sector. And if you have a central bank that does not have the capacity to step in and help the banks in a system that is as fiscally wobbly as Argentina, you’re also going to have a bank run, a bank collapse and nothing behind it to stabilize it.

So for this plan to work, not only do a lot of things have to go right that are beyond Argentina’s control, but Argentina would have to enter through a series of banking and fiscal reforms in a matter of days that most countries take a generation to do. There’s a reason why dollarization, as a rule, is not something that states do, and it’s certainly not a quick fix.

It requires years of reforms, and it’s not clear that the political and economic system in Argentina has that sort of durability or attention to detail. So honestly, dollarization, as a rule, reminds me a lot of Boston’s participation in the Revolutionary War or modern sports. They hit hard right out of the gate. They pick a lot of fights, and then they largely sit out for the rest of the season.