Javier Milei’s Bold Plan To Raise Argentina from the Ashes

After sending local capital markets into a tailspin and triggering a currency devaluation with his shock win in his country’s presidential primary, Argentina’s leading presidential candidate Javier Milei – a self-described anarcho-capitalist – added to the shock factor when he pledged to close the nation’s central bank while saying he would make every effort to avoid a default on the country’s sovereign debt if he wins the October vote. Milei, a libertarian, claims his bold fiscal adjustment would boost Argentina’s reputation and credit profile. His platform is so politically incorrect and fantastically outrageous in its nihilistic brilliance, that if he wins Argentina becomes a Petrie dish for True Liberty.


Milei’s plan includes slashing spending by at least 13% of GDP before mid-2025 by dramatically downsizing public works, reducing the number of ministries, removing subsidies and capital restrictions that would allow businesses to transact in US dollars. More drastically, he also plans to shutter the central bank which he said has “no reason to exist”, and dollarize the $640 billion economy.

Milei triggered a market shock when the presidential candidate – largely viewed as an outsider without serious chances for the position until now – came out ahead in the primary, seen as a barometer for presidential elections in a country where polls are notoriously unreliable. The slump forced the government to devalue its tightly controlled official exchange rate by 18% when markets opened Monday.

In the first interview to foreign media (Bloomberg News) after his unexpected win, Milei detailed his plan to scrap the Argentine peso for the US dollar as a way to bring down inflation that’s running at 113%, and upped his criticism of the central bank, which he called “the worst garbage that exists on this Earth.”

“Central banks are divided in four categories: the bad ones, like the Federal Reserve, the very bad ones, like the ones in Latin America, the horribly bad ones, and the Central Bank of Argentina,” he said.

If Milei wins the presidency, he plans to hand over the keys to the central bank to economist Emilio Ocampo, his informal adviser on the dollarization program, so that he can shut it down. Ocampo will also help in negotiations with the International Monetary Fund, which has a $44 billion program with the South American nation. The candidate says he has no plans to ask the IMF for more money.

“A fiscal deficit is immoral,” Milei said.

“If you live continually with a fiscal deficit, you’re going to be insolvent.”

Just don’t tell that to the US which has had like four annual surpluses in the past 50 years.

Milei said he’s already developed a plan to dollarize the economy, a move he vows would be among his first in case he wins the Oct. 22 election. Argentina would follow El Salvador’s model, allowing people voluntarily choose between currencies.

Once two-thirds of the monetary base is converted, the economy would become fully dollarized, he said.

“If nobody wants to have pesos in Argentina, the question is how much are pesos worth in real terms? Nobody wants them, we’re not talking about water in the middle of the desert. We’re talking about something nobody wants,” Milei said.

Manuel Garcia Gojon writes, at The Mises Institute, that Milei’s full plan – which he laid out in some detail on August 2nd, is nothing if not pragmatic from an anarchist point of view.

The first measure consists of an organizational reform of the government, going from 18 to 8 ministries. The ministries to be included are interior, foreign relations, defense, economy, justice, security, infrastructure, and human capital. No career bureaucrats are to be fired initially, but they will be reassigned. The political appointees will not be renewed and will be kept to a minimum. All government employee privileges, such as bodyguards and drivers, will be eliminated, except in the cases in which they are absolutely necessary for security reasons. This measure also includes initiating the privatization or closure process of all state-owned companies.

The second measure consists of a significant reduction in public spending. For the first budget, they seek to eliminate expenditure items amounting to 15 percent of GDP, taking it from a deficit to a surplus. On the revenue side, they seek to eliminate 90 percent of taxes, which only raise an amount equal to 2 percent of GDP but have a distortive effect. There is also an intention of lowering the taxes that remain.

The third measure consists of a flexibilization of labor regulations. Firing an employee is currently very costly in Argentina between litigation and compensation. This measure is geared toward reducing those costs by making it easier for companies to fire new employees. The balancing side of this measure is the implementation of a private unemployment insurance scheme. With this measure they seek to take formal employment in the private sector from 6 million positions to 14 million positions.

The fourth measure consists of a liberalization of trade. The goal of this measure is unilateral free trade in the style of Chile. This includes the elimination of all import and export tariffs and the reduction of regulatory restrictions.

The fifth measure consists of a monetary reform. This measure includes allowing the use of any commodity or foreign currency as legal tender and the liquidation of the central bank, which would result in the elimination of the Argentine Peso. There are alternative plans for the implementation of this measure, but the leading one is the one developed by Emilio Ocampo and Nicolas Cachanosky. In terms of timing, it would take between nine and 24 months. The conversion would be made at the market exchange rate. Once two thirds of the monetary base has been converted, a countdown for the last date to convert would be triggered.

An additional challenge for this measure is that the central bank has remunerated liabilities three times the size of the monetary base. These are like the Federal Reserve’s program of paying interest on reserves in order to sterilize increases in the quantity of money. The central bank does have some commodities and foreign currencies in reserves but most of the assets consist of government bonds that currently trade at a third of their face value. To access the necessary liquidity to liquidate the central bank, the bonds would be transferred to a fund which would acquire the necessary line of credit using the bonds as collateral. The line of credit has already been confidentially agreed upon. The bonds are guaranteed to increase in price if the budget deficit is eliminated as specified in the second measure.

The sixth measure consists of an energy reform. This measure intends to eliminate all subsidies to energy providers through a recalibration of the financial equilibrium to lower costs to keep the companies profitable and minimize the impact on the cost to the consumers. This measure opens a door to subsidies on the demand side for vulnerable households. They also seek to improve the energy infrastructure through a scheme of public interest declarations for projects which would be financed and executed by the private sector, but for which the government might provide a minimum revenue guarantee.

The seventh measure consists of fostering investment. This will be done through a special legal arrangement for long term investment with a focus on mining, fossil fuels, renewable energy, forestry, and other sectors. In order to foster investment, they will also aim to eliminate foreign exchange restrictions and export fees.

The eighth measure consists of an agrarian reform. This includes the elimination of the foreign exchange spread between the official exchange rate and the market exchange rate through the liquidation of the central bank, the elimination of all export fees and retentions, the elimination of the gross revenue tax, the elimination of all restrictions to foreign trade including quotas and the need for authorization, the promulgation of a new seeds law, and the improvement to road infrastructure through private enterprise.

The ninth measure consists of a judicial reform. This measure includes the designation of a Minister of Justice with the consensus of the judicial branch, as well as the appointment of a Supreme Court Justice without political affiliations to fill the present vacancy, prohibiting members of the judicial branch from engaging in partisan politics, and promoting the budgetary independence of the judicial branch. Furthermore, they will seek to implement jury trials and oral proceedings throughout the country.

The tenth measure consists of a welfare reform. Current welfare benefits will be initially maintained. They aim to move in the long term towards a private system in which users pay for the health and education services they consume. In the short term they aim to provide income protection programs to mitigate extreme poverty, nutritional programs, parental educational programs about cognitive stimulation, greater coverage for preschool, incentives for graduation, programs for the integration of people with disabilities, the promotion of access to private credit, and the elimination of all middlemen in the provision of welfare.

The eleventh measure consists of an educational reform. They aim to move towards a greater degree of freedom to choose the curricula, methods, and educators. The measure also includes launching a school voucher pilot program. They will also establish an evaluation criterion for schools so that they may compete for incentives.

The twelfth measure consists of a health reform. They aim to transfer the subsidization of healthcare from supply to demand to allow for greater freedom of choice and competition. This measure includes providing the existing healthcare benefits as vouchers so that there is no restriction to a specific provider.

The thirteenth measure consists of a security reform. This measure includes reforms to the homeland security, national defense, and intelligence laws, as well as a reform to the penitentiary system to incorporate public private hybrids and intensifying the prosecution of drug trafficking.

The one-time congressman obtained more votes than the pro business coalition led by Patricia Bullrich and the ruling Peronist bloc of Economy Minister Sergio Massa, surprising pollsters who expected him to come in third.

Investors are now worried the country is headed for its fourth debt workout in the past two decades.

Among chief concerns for markets is that Milei, a political outsider, wouldn’t be able to get backing for his plans.

The 52 year-old, who doesn’t shy away from criticizing politicians he says have been robbing Argentines for decades, said he would call referendums if he can’t get legislative consensus to approve his measures.

“If I lower the currency risk, and I lower the credit risk, that means country risk will plummet. It means that bonds are literally going to fly,” he said.

“The truth is its a pretty simple trade. Or, if you buy and hold, for example, returns in a year would be above 200%.”

In the wide-ranging Bloomberg interview, Milei also criticized China and Latin America leftist leaders he considers “socialists,” said he would seek to leave the Mercosur trade bloc and would quickly move to deregulate commodity markets.