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BIPR | Argentina and Milei: Is This Time Different?
Argentina and Milei: Is This Time Different?

March 25, 2024 - 18:30

Guido Sandleris, Former Governor of the Central Bank of Argentina; Johns Hopkins University SAIS Europe; Universidad Torcuato Di Tella, Argentina

Event Recap

On March 25, BIPR hosted an event featuring Guido Sandleris, the former Governor of the Central Bank of Argentina and a Professor of Practice in Economics at SAIS Europe. Sandleris offered an insightful overview of the Argentine economy over the past five decades, scrutinized the first 100 days of President Javier Milei's administration, and projected a future outlook.

The Argentine economy has struggled severely since the 1970s, with average real GDP growth of only 0.6% over the last 50 years. The only country in the region with a worse growth performance than Argentina has been Venezuela, which suffered under Hugo Chavez's and later on Maduro's administration. Analysing growth by decade, aside from the 1990s, Argentina routinely underperformed. Inflation has also been extremely high in the country in the last 50 years consistently exceeding 20% per year for a vast period of time, peaking at 211% in 2023, the highest annual rate since the hyperinflation of the early 1990s.

One of the key elements to understand Argentina's economic problems is its fiscal deficit. The government has only achieved a total budget surplus six times and a primary surplus thirteen times in the last 50 years. Between 2003 and 2015, under kirchnerism, public spending increased from 23% to more than 41% of GDP. Furthermore, Argentina is the world's third most closed economy, which severely limits its trade contacts and economic growth.

Since democracy was restored in 1983, Argentina has been primarily governed by Peronist presidents. However, the election of Javier Milei, known for his radical and libertarian ideas, signaled a substantial change. Milei rose to prominence with his "chainsaw economics," which involved implementing severe cuts in government spending, blaming traditional politicians (la casta) for Argentinás economic woes and calling for a dollarization of the pesos.

Milei took substantial measures to alleviate Argentina's economic crisis during his first 100 days in office, while relying on little backing from Congress. Sandleris argued that Milei has inherited a very the precarious economic situation, including a budget deficit of 5.4% of GDP, a 170% foreign exchange imbalance, and negative international reserves of $11 billion at the Central Bank. Against this background, the increase of international reserves to negative $4 billion by executing a significant devaluation and the reduction of the fiscal deficit in the first months are notable achievements. In particular, because he has been able so far to undertake painful measures without losing popularity.

Milei's economic approach has yet to be proven sustainable. Fiscal surpluses have been achieved, albeit at the expense of diminished public investment and worsening economic conditions, which are reflected in higher poverty rates and lower real wages. Milei's solution to inflation relies heavily on the forces of recession to reduce it, which comes at a high economic and social cost.

Looking ahead, Sandleris suggested a cautious optimism about Argentina's future under Milei, although the hurdles are significant. Argentina's economy is still very weak and unstable. Milei's capacity to manage inflation and deal effectively with Congress is hampered by a lack of political support and an ongoing economic downturn. If he can preserve his anti-casta appeal while also reducing inflation, he may be able to maintain his much-needed popularity. Sandleris concluded that the country has considerable potential, and Milei's performance thus far has exceeded expectations. His abilities to navigate Argentina's difficult landscape and implement successful policies in the long run remain to be seen.

Argentina and Milei: Is This Time Different?

hosted by Professor Anna Maria Mayda

Guido Sandleris
Former Governor of the Central Bank of Argentina; Johns Hopkins University SAIS Europe; Universidad Torcuato Di Tella, Argentina

Guido Sandleris is Professor of the Practice at SAIS Europe and Professor of Economics, Universidad Torcuato Di Tella, Argentina.

Professor Sandleris was Governor of the Central Bank of Argentina between September 2018 and December 2019. In June 2017 he joined the Argentine Ministry of Economy as Chief of Advisors to the Minster and in June 2018 he was appointed Secretary of Economic Policy.

He was a visiting professor at the London School of Economics (UK), Pontifical Catholic University of Rio de Janeiro (Brazil), and Universidad de Los Andes (Colombia), and a visiting researcher at the Federal Reserve Bank of Minneapolis, the Central Bank of Chile, the Inter-American Development Bank (IDB), and the International Monetary Fund (IMF). He was Director of the Center for Financial Research at the Universidad Torcuato Di Tella (UTDT) where he was also appointed Dean of the Business School between 2014 and 2015.

Sandleris specializes in international economics, macroeconomics and finance, and his academic research focuses on the effect of financial crises. His papers have been published in the Journal of International Economics, Journal of Monetary Economics, Journal of Money, Credit and Banking, Oxford University Press, and others.

He was a consultant and researcher for the World Bank, the Inter-American Development Bank, and several Latin American governments and investment banks. He has received several scholarships and research grants from the Fulbright Commission, the Central Bank of Argentina, the World Bank, Columbia University, and LACEA.

He holds a PhD in Economics from Columbia University, a Master's degree in Economics from the London School of Economics, and a degree in Economics from Universidad de Buenos Aires (UBA).

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