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The author is chief economist at BCP Securities.
Social scientists like the idea of critical junctures. It is a theory of how momentous events, usually large external shocks, can alter the long-term trajectory of an economy. But sometimes seemingly minor changes in a country can also have long-term effects. Argentina is starting to look like an interesting case of that dynamic.
Behind all the noise surrounding President Javier Milei, it is micro-level policies, rather than grand macro-level plans, that may finally be changing Argentina’s historically terrible economic trajectory.
Argentina has had a dozen stabilization plans since 1952. All were based on the stabilization of macroeconomic variables such as the money supply and the exchange rate through the imposition of policies such as indexation and dollarization. They all failed.
One of the reasons they failed is that they did not address the inflationary biases embedded in a web of Byzantine rules and regulations. Milei, by contrast, has broken the mold of previous stabilization programs by focusing on microeconomics and institutional reform. Under the leadership of economist Federico Sturzenegger, the government has begun to dismantle decades-old networks of regulation, middlemen, intermediaries and tariffs that hindered innovation, productivity and competition. As a result, inflationary pressures have decreased as transaction costs have decreased.
For example, political organizations such as La Cámpora, a Peronist youth organization co-founded by the son of former president Cristina Fernández de Kirchner, administered many social assistance plans, building a clientelist relationship with the poor. Milei’s reforms took Cámpora out of the loop and distributed benefits directly, increasing the net amount people received. This approach, implemented at a micro rather than a macro level, has been replicated throughout the country, eliminating many of the obstacles that have made life so difficult and expensive for millions of ordinary Argentines.
Ports are another good example of Milei’s approach. The long-standing dominance of the Argentine export sector by the ports of Buenos Aires and Bahía Blanca, two inefficient shallow-water ports, is now threatened by a new deep-water superport in the province of Río Negro. The $2 billion San Antonio del Oeste facility will house deep-draft supertankers that will load millions of barrels of oil from Vaca Muerta bound for China.
Sustained and rising inflation, Argentina’s curse for decades, is an investment killer. The new large investment incentive regime, known as RIGI, could help put the country on the path to recovery. It provides tax and customs exemptions, and exchange incentives and guarantees, giving companies the guarantees they need to make long-term commitments.
Throughout Argentina’s history, and everywhere from insurance to notaries to import approvals, officials, sometimes even presidents, have demanded kickbacks, bribes, and margins in exchange for the supply of goods and services. basic services. The resulting inefficiencies have left culture, society and the economy at the mercy of a political class dominated by the Peronist Justicialist party.
Milei has vowed to break this stranglehold. That is why he continues to insist on the word “freedom” in his rhetoric. While it may be implementing a macroeconomic stabilization program attacking the fiscal excesses of previous administrations, the real change is occurring at the micro level, allowing the population to free itself from the chains imposed by the political system.
This is a critical juncture for Argentina. It could also usher in a new era in microeconomic policymaking.