By Guillermo Rodríguez Conte
Argentina was once the world’s richest country. Even more than the United States. Today, its economy is trapped in an endless inflationary hell.
It has the privilege of being a vast land. Once part of the Spanish Crown, rich in different resources and with immense potential, the country is waiting for an investor-friendly environment to be created and maintained by a liberal government. This has never been possible. Until now.
Javier Milei is currently the most famous name in Argentina and half of the planet. Why? He has become the most-voted president in Argentina’s recent democratic history. And he is the most liberal president the country has ever had. This is something to be taken seriously because he would still be perceived as a strongly liberal president in other countries, too. Not just in Argentina because of the country’s special situation.
There are some letters strongly heard in Argentina right now: DNU, or “Decreto de Necesidad y Urgencia” – the Need and Urgency Decree, a presidential act aiming to liberalize Argentina’s economy. A new law in this sense is also being prepared to be presented to parliament. These juridical instruments condense all measures the new government wants to implement as soon as possible. Indeed, the referred decree has already entered into force.
The newly enacted President is firmly determined to implement these measures. He has stated that if the parliament rejects them, he will call the Argentinian people to vote for them in a referendum.
However, what do these measures consist of exactly? A good summary of what is being cooked in the Argentinian government is:
International trade simplification
Privatization of public companies
Reduction of subsidies
Strong fiscal adjustment
How will all this be implemented if those areas seem to be complex and parliamentary approval is needed? The answer is simple: per decree. In practice, this implies the delegation of parliamentary attribution to the executive power for a limited period of -for now- two years.
These measures will constitute a total reform of Argentina that will undoubtedly impact the businesses with interests in the country. However, this impact will not be just economic. The political risk of these measures is very high.
The new government's measures must transit a difficult trail before their full and permanent implementation is assured, through three different areas. The Argentinian government has a pending battle in each one of them:
1. Legal area: Constitutionally, the DNU is easily questionable. Many of the impacted sectors have already brought this to the tribunals. Not just Unions but also professional chambers such as the customs brokers’. Even one of the country’s provinces has brought the case to the Supreme Court.
2. Political area: the DNU entered into force on December 29th. However, it must be validated by the parliament. Given the silence, or blockade, of one of the chambers, it will still be in force. Politicians will analyze their political risk if they support these drastic measures.
3. Social area: the DNU could have, at least at first, a strong negative impact on people's daily lives. With a two-digit weekly inflation, it is not clear if the government will be able to structure symbolic payments to the Argentinian people aimed at balancing these measures’ impact.
If the possibility of a referendum is confirmed, the President will measure its representativeness with the parliament’s, where his political party has a small delegation.
We cannot deny that 2024 will be a defiant year for Argentina’s agenda and business climate. This is why including political risk on the radar of business decisions is necessary. The DNU must be analyzed not only from the perspective of its economic consequences but also through its potential short-term incidence in terms of inflation, social protest, and political climate. The political context will be key to determining such measures' advance, reversion, and perdurability.
Milei’s victory in the presidential elections could not necessarily be a synonym for change in Argentina. Even if new, powerful economic measures have entered into force per the decree, juridical security in Argentina is still a fog. Its political risk - and the capacity of Javier Milei to face it - will determine the country’s future towards a liberal change. Or not.