After writing extensively during our due diligence trip during Easter to this once richest country on earth, the fundamental economic numbers do point to massive turnaround from very depressed levels, but the one big question that could deter actual commitment to this as an investment target remains: Can President Milei's reforms last?
To understand whether the Milei phenomenon will last, we must look at the global geopolitical pattern at large: we are now in a gigantic anti-establishment wave that will characterise economic cycles for many years to come; and thus Milei may not be a flash in the pan phenomenon of some 'whacko academic madman' hitting a random high. Let us explain this thesis in a bit more detail:
The end of a multi-decade bureaucratic expansionary cycle?
The post-WW2 years have started a period of perhaps well intended, but centrist and interventionist governance wave, typified by deficit spending and ever bigger governments that made these charts look so absolutely lopsided:
The cancerous growth in the public sector led to, for example, too much Gerontocracy (left chart, in USA) enabling permanent politicians to make fortunes trading on insider legislative info, while the governments they are supposed to supervise and scrutinise go into perpetual deficit spending (right chart, not just USA, but in all developed world). The main side effect of this is the explosive increase in tax burden - big governments need big tax incomes to finance - while killing the middle class (note how little regulation there was before WW2):
There are many such charts that demonstrate such post-WW2 cancerous growth of the administrative state, but we will stop at the above three.
No wonder so many democracies now look like autocracies (see our many UK comments for details), with the state and its establishment allies increasingly targeting real representatives the people voted in as 'deplorables', 'extreme right wing', and 'populists'. That cycle seems to have reversed: now people are voting en masse against the socialist establishment, and bringing back to power, one after another, politicians who vow to fight for the common man, and not globalist causes:
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This wave of anti-establishment sentiment is reaching a new height in May in the UK, where local elections returned a landslide win by Nigel Farage's Reform party, decimating all other opposition in the process.
Milei - the more daring (or genuine) of the rebels
It is against this context that we view President Milei as a phenomenon that will not vanish overnight, because he is a fresh outsider with policies far more radical than many of the more jaded politicians named in the table above - most of whom having been in politics for far too long, and have become disillusioned by the bureaucratic drag that they know will undermine their policies.
Milei is different - he seems unmotivated by money and position, and he is a more fervent believer of anarcho-capitalism than just about all the rebels listed above (see analysis here for a good summary of his beliefs). What's more, he does not mince his words:
Another example (see link here) of his no holds barred style makes him so transparent to the voters as to where he stands, unlike all politicians out there:
This is why his public spending cut drives (see this video for dramatic effect), although ambitious, could indeed work?
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The biggest question on the minds of investors will be: does Milei have the ability to pull off his reform agenda, not being the leader of a majority party in the parliament? Here is our quick take on his various policy agenda thus far:
One year in, we are delighted to see so many ticks or half ticks in this long list of dramatic social/economic/political reforms in the sick man of America a.k.a. Argentina. So impressed is the current reformist US to have such an ally that the Trump administration seems willing to help Milei with Argentina's debt restructuring efforts (link).
His latest big surgery is to return the Peso to market driven fair values, and is apparently succeeding - below, the black market rate premium (blue area below) has collapsed from 160% pre-Milei to near parity now:
The only previous episode when we had a similar drop was during the term of President Mauricio Macri (2015) when he lifted capital controls. The premium returned after President Alberto Fernández was elected and reinstated strict currency controls (which gave rise to property hoarding as a hedge of hyperinflation that resulted).
If we were to bet on a new future for Argentina, we need Milei and his policies to stick, at least for a typical 3-5 year minimum investment horizon for properties.
Can Milei be re-elected?
This leads naturally to the next questions - is he still popular? What are his chances of being re-elected?
First on popularity: it is heartening to see him almost as popular now as the day he stormed to power 1.5 years ago - standing at 47% support now vs 49% back in Jan 2024:
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It is interesting to see that President Macri, being pro-market as well, had similar popularity levels as Milei, although starting off with much higher popularity than Milei. Across all income strata, it seems the people who support Milei most are the lower middle class and the poorest segments of the society:
And compared to all other heads of states in South America, Milei has the most constant net approval ratings, whilst fellow presidents generally suffering from rising net negative approval ratings:
So the proof of the pudding will be first the Buenos Aires election on 18th May (yes this week!), followed by the national election on 26th October (see here).
Given the widespread anti-establishment uprising around the globe described above, even the Buenos Aires election is seeing new party being formed by the former mayor (like Reform in the UK?).
If one believes in the saying 'the trend is your friend', we probably have a very high chance of free market politicians winning again in Argentina as well...
