Argentina - Ride the Milei hype wave at your own risk
Don’t confuse the boom years of a boom-bust cycle with being a permanent escape from that cycle. Argentina remains Argentina.
When I wrote about Javier Milei one year ago, I said that Milei was likely starting his term at the correct part of the boom-bust cycle that defines Argentina’s economic history. The country was near the bottom and the conditions for an improving economy were all there for the taking. “Even as I can't sketch out a long term positive scenario under President Milei, I'm forced to believe that someone is going to make a whole lot of money investing or speculating on Argentina in the short to medium term in the coming years.”
As Milei finishes the first year of his term, that seems to be correct. The economic results from the first year have been mixed, but good enough. The fiscal deficit is way down thanks to Milei’s harsh spending cuts. The black market peso is close to the official rate, giving space for Milei to correct the currency control challenge. Shortages are no longer common. Inflation has dropped to only 2% per month, horrific by any standard other than what Argentina has suffered through, but worth cheering as a sign of progress. The economy spent most of the year in recession but seems on a path toward decent growth in 2025. The president’s popularity remains around 50% and the protests against his government are contained and not particularly destabilizing by Argentina standards.
On the international front, Milei has an ally coming into power in the United States. He is closer than ever to an IMF agreement. He has moderated his anti-China stance, opening negotiations with Beijing over the debt and currency swaps that are a critical part of any economic solution.
The slightly better than mediocre economic results, the positive international relations, and the fact Milei hasn’t been forced to flee in a helicopter due to angry mobs were low bars to reach. But great for Milei to leap over those low bars.
With that said, pro-Milei hype is in full swing. Argentina’s president is having an international media moment where everything is going his way. A surprising number of politicians, analysts, investors, and journalists from outside the country really believe in Milei and his agenda. He’s an international rockstar on the free market economics speaking circuit.
Will it continue into 2025? I’d absolutely bet on it going another year or two. All the conditions are lined up and the enthusiasm is going to push things forward. I don’t give market advice, but this is not the newsletter where I tell you it’s all going to crash and burn soon. This is one where I say that I think the momentum is there and people should ride Milei’s chainsaw like a surfboard.
As I wrote last December, Menem and Kirchner had multi-year boom periods before the crash. Macri had a mini-boom that was shorter than those two but still long enough that he sold 100-year bonds to investors caught up in a frenzy. In a similar way, this is Milei’s moment, and it’s going to be positive for a while longer, even if I think an eventual crash is almost inevitable. To be fair, I think a leftwing populist or a centrist technocrat may have gotten the same results, hype, and eventual crash as Milei, but with different actors cheerleading it.
Still, I like to stress that the hype is unlikely to last beyond a few years. Don’t mistake a great 2025 and 2026 for Argentina becoming a developed market. Don’t confuse the boom years of a boom-bust cycle with being a permanent escape from that cycle. Argentina remains Argentina. The debt is not going to be repaid through a couple percentage points of fiscal surplus. The fights among various debt-holding groups will be bitter. Austerity is painful for many of the country’s citizens, with poverty up across the country. The economic growth that is expected won’t provide enough jobs. The lack of a social safety net will drive political anger and that will create the tensions that eventually lead to Milei’s political downfall. This time will not be different.
I’ll eat my words if Milei makes it to 2031 and he is so popular that people are talking about how he maintains power as he hands the presidency to his chosen successor. Whether you think that scenario is possible is the question to ask. Is Milei making the sort of structural changes that mean Argentina can have a decade-long economic boom that lets them escape the debt trap and the permanent boom-bust cycle? Come up with the most optimistic scenario you can, and then ask whether it’s realistic and you actually believe it. If you’re all in on Milei, good for you and him; make that bet. But if you also have a hard time keeping a straight face imagining that the Milei boom is sustainable both politically and economically, then ask yourself how much longer it goes and what the signs are that it is weakening. It’s going to be a fun wave to ride for a few years, but you don’t want to be there for the wipeout.