Only weeks into his term, Argentina’s new president, Javier Milei, seems to be making good on his promise to put a chainsaw to the country’s crisis-ridden economy. In his inaugural address, Milei told the nation: “There is no alternative to shock.” He dissolved half of the country’s ministries days later, and implemented a 50% devaluation of the peso.
But amid massive spending cuts, prices continue to spiral. Argentina’s annual rate of inflation has reached a three-decade high of 254.2%. Milei blames the poor economy on years of mismanagement, and has warned his compatriots to expect more pain before any gains will be felt.
While many support his measures, there are clear signs of disconnect. His government suffered the earliest general strike in history, conceding the streets to masses of protestors. More alarming for Milei, his all-reaching “omnibus law”, which ranged from economic policy to the privatisation of state entities, failed to get sanctioned by a divided National Congress in which he lacks a majority.
However, this resistance seems only to be emboldening the president. His plan to dollarize the currency, which some dismissed as mere electoral strategy, now seems likely to come sooner than expected. Milei has also launched a “cultural war” against his critics including Lali Espósito, a well-known Argentine pop star. But unless the economy picks up soon, he may be fighting a growing mass of unhappy citizens.
Argentina’s president, Javier Milei, addresses a crowd from the balcony of the Casa Rosada in Buenos Aires. Juan Ignacio Roncoroni / EPA
Echoes of the past
Shock therapy – involving the sudden removal of trade barriers and labour protection, and the implementation of drastic fiscal policies – is not new in Argentina. It was integral to the last dictatorship’s economic plan (1976-1983), who had learned from the pioneer in shock therapy: Chilean dictator Augusto Pinochet. In both cases, an eventual debt crisis followed.
In the 1990s, the then-Argentinian president, Carlos Menem, announced “major surgery without anaesthesia” on the economy. Failing to curb escalating inflation, it took currency “convertibility” – pegging the peso to the dollar – to break that cycle. But this generated new public debt, chronic stagnation, high levels of unemployment, and provoked the largest sovereign default in history.
Shock therapy is not only a Latin American phenomenon. The collapse of the Soviet Union led to a rapid transition from state-based to free market economies for a large part of the world’s population.
In Poland, the Balcerowicz Plan provoked an initial hike in inflation before eventually stabilising the economy based on free market capitalism – although new inequalities and social problems were on the way.
Milei’s challenge
Two features distinguish Milei’s shock therapy. First, he has a comparatively weak political position – particularly in Congress. Second, it is unclear how much of Argentina’s population is prepared to support his measures, as memory of the crisis looms close in the public imagination.
Milei has already introduced massive spending cuts, including a reduction of salaries and pensions via both inflation and suspending funding to subnational governments to pay salaries and subsidies. He has also launched an ambitious project to reset the Argentine economy, which includes the privatisation of all public companies, liberalisation of trade, and deregulation of labour.
Social opposition was immediate. Despite the government discouraging mobilisation by banning road blocks and large public gatherings, spontaneous protests took place in cities across the country. Labour organisations and trade unions have provided the largest resistance, through declarations, protests and legal claims.
Then, on January 24, when Milei was barely a month into office, a general strike was called. The strike, which included even Argentina’s more conservative unions, brought the country to a standstill.
Meanwhile, Milei has faced resistance in Congress. His omnibus law was expected to collect support from centre-right parties and subnational governors in need of national funding. However, Milei’s dogmatism prevented the government from accepting the changes requested by its potential allies, and the bill collapsed.
Since taking office, Milei has had a fragile relationship with governors and deputies, calling lawmakers a “delinquent cast set out to get bribes and perpetuate the decadent status quo”.
Instead of taking advantage of his strong electoral victory and fragmented opposition parties, he has provoked confrontation and ever-unified resistance. Public opinion also seems to be turning, as the proportion of people living in poverty has shot up from 45% to almost 60%.
With a sluggish economy, it is difficult to imagine how the president will find the necessary support for his shock therapy.
Dollarization: Milei’s big gamble
The most ambitious, yet unpredictable, element is Milei’s well-publicised plan to dollarize the currency. He claims this will generate hope and reboot a competitive economy, with the middle class able to travel and buy imported goods at ease.
But, based on current exchange rates, the average wage is set to be just US$218 (£171) per month, and this is likely to fall further following expected devaluations in the coming months.
If the plan fails, Milei can expect resistance to be mighty. Argentina has a deep history of popular uprisings. In 2001, five presidents resigned in the space of two weeks, with one of them escaping the Pink House (the president’s official workplace) in a helicopter.
Since then, despite regular protest and crisis, all governments have finished their terms and pursued their economic policies. Will Milei break the mould and be thrown out of office early? Or will he be able to show Argentinians a real economic turnaround before patience runs out?
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
