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Trending Right: An Update on Javier Milei’s Economic Reset of Argentina

In his run up to the presidency, Javier Milei campaigned on radical ideas to transform Argentina from a government-dependent market economy that was facing collapse with unsustainable inflation, massive debt and poverty levels of around forty percent. Milei, a self-described liberal libertarian, promised strong fiscal controls, including abolishing the country’s central bank and replacing the Argentine Peso with the U.S. dollar, as well as suspending public works and reducing government subsidies.

Nearly sixty days into his presidency, Milei seems to be getting support from other lawmakers. Last week, the country’s legislative lower house, the Chamber of Deputies, approved, in general, his reform bill, considered an omnibus with more than three hundred articles. He received 57 percent of the favorable votes from lawmakers. Many parts of the bill are still subject to negotiations and are expected to drag on given recent protests. “Populism in Argentina has been [present] for over seventy years. The roots are big,” said Mariana Idrogo, a risk management consultant based in Buenos Aires, during a recent episode of the “Integro Talks” podcast. “There are many people involved and these people are right now out of power. They won’t be happy to lose their privileges.”

After the Chamber of Deputies, the Senate would also need to approve Milei’s bill. Idrogo doesn’t believe that would be too challenging. “The Senators respond to the governors of each province and the governors respond to the funds from the federal government,” said Idrogo. If Milei is able to follow through with his plan to reduce taxes, in the near term the reduction in public income would translate to a reduction in the funds that the central government sends to the provinces.

Milei’s vision goes beyond conventional economic policies and demands a shift in the mindset of the people of Argentina, from both the private and public sectors. With a steadfast commitment to international competitiveness, Milei aims to unlock the country’s untapped potential. His call for economic openness and encouragement of international trade challenges Argentina’s historical protectionist stance, paving the way for a market-driven landscape. In his plan, he is pushing to scale back the burden of government regulations on commerce to foster international trade. “We have plenty of natural resources of many types. It’s always been a way that Argentina has inserted itself into international trade,” said Idrogo, who is founder of G5 INTEGRITAS and advises multinationals on compliance and ethics.

Milei’s economic reforms present both challenges and opportunities for businesses in Argentina and those seeking to do business in that country. Entrepreneurs and investors must equip themselves with the knowledge and flexibility needed to seize the opportunities. Navigating these challenges and opportunities demands a proactive and strategic approach to risk management.

Businesses and investors are urged to adopt a risk-reward analytical approach as a shield against potential volatility. The implications for risk management strategies are far and wide:

Currency Fluctuations and Market Volatility: With the liberalization of the economy, businesses may face increased currency fluctuations and market volatility. Effective risk management strategies should include hedging mechanisms to safeguard against sudden changes in exchange rates and market conditions.

  • Industry-Specific Challenges: Different sectors will experience varied impacts. Businesses need to conduct thorough industry-specific risk assessments to understand how Milei’s policies may affect their operations. This involves identifying regulatory changes, market dynamics, and potential disruptions unique to each sector.
  • Compliance in a Changing Regulatory Landscape: As Milei introduces reforms, regulatory changes are inevitable. Businesses must stay agile and ensure their compliance frameworks are adaptable. This involves regular audits, staying informed about policy updates, and aligning internal processes with evolving regulatory standards.
  • Global Economic Integration: Milei’s vision emphasizes global economic integration. While this opens up opportunities for expansion, it also exposes businesses to global risks. Companies should assess their global supply chains, dependencies, and vulnerabilities to create resilient and agile business models.
  • Social and Political Unrest: Economic transformations can trigger social and political unrest. Businesses need to consider the potential impact on their operations and workforce. Developing contingency plans for managing disruptions caused by protests, strikes, or other forms of unrest is crucial for long-term sustainability.

Despite how extensive populism is embedded into day-to-day life in Argentina, Idrogo remains cautiously optimistic about her country’s future. “A large consensus of the general society believes that this has to be stopped at some point. [The populism] diverted into something that has nothing to do with the original motives.”
Milei hopes to ride the momentum of his proposed sweeping reforms and restore Argentina’s role as an economic power.

 

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