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How economically sustainable are Milei's austerity measures · DEEP INSIGHT

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  Speaker 1: Argentina's President, Javier Milay, has vowed to press ahead with
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  Speaker 1: economic reforms after securing a surprise victory in midterm congressional elections.
• 0:09
  Speaker 1: The vote was a test of public acceptance of sharp
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  Speaker 1: cuts in public spending. Malay's win should unlock a multi
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  Speaker 1: billion dollar US aid package promised by his ally Donald Trump.
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  Speaker 2: An ecstatic president rushes into the arms of his supporters.
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  Speaker 2: Javier Malay's La libattad Avanza party exceeded electoral expectations, more
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  Speaker 2: than doubling their numbers in Congress and more than tripling
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  Speaker 2: them in the Senate.
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  Speaker 3: The Argentine people have decided to leave behind one hundred
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  Speaker 3: years of decline and to persevere on the path of freedom,
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  Speaker 3: progress and growth. Today we reached the turning point. Today
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  Speaker 3: begins the construction of a great Argentina.
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  Speaker 2: The remarkable results mean Melay will have enough support in
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  Speaker 2: Congress to uphold presidential vetos, fend off any impeachment effort,
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  Speaker 2: and push through his ambitious tax and labor reforms.
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  Speaker 1: The kids voted, Democracy voted, the country voted, and this
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  Speaker 1: changes the entire situation in Argentina, the entire economy at
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  Speaker 1: the national level. All of this is beautiful.
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  Speaker 4: Everything that's happening is bringing joy to people. Look at
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  Speaker 4: what the people of Argentina wanted. We wanted security, We
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  Speaker 4: wanted to change the Congress that's been the same for
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  Speaker 4: years while our children suffered.
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  Speaker 2: A massive US bailout. Package dangled another carrot for Argentine voters.
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  Speaker 2: President Trump signed a twenty billion dollar currency swap to
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  Speaker 2: stabilize the temperamental peso, with the offer of the same
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  Speaker 2: amount again if his party won this election. Trump says
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  Speaker 2: his endorsement helped me lay win by such a large margin.
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  Speaker 5: I want to give congradulate the victor, and he was
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  Speaker 5: a big victor at he had a lot of help
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  Speaker 5: for us.
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  Speaker 2: Two years into his economic overhaul, MELA has succeeded in
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  Speaker 2: reducing inflation from triple to double digits, but the associated
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  Speaker 2: austerity measures left many Argentines struggling to make ends meet.
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  Speaker 2: The opposition party said the government was mistaken for celebrating
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  Speaker 2: and given historically poor voter turnout, say six out of
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  Speaker 2: ten voters disagree with Argentina's economic direction.
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  Speaker 1: Matias Fernango is an economics professor and the director of
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  Speaker 1: the Institute for Public Policy at Buckenhall University. He joins
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  Speaker 1: us from Louisbourg and Pennsylvania.
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  Speaker 6: Welcome to the program. Thank you for having me.
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  Speaker 7: So.
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  Speaker 1: Argentina stocks, its currency, and its government bonds have soared
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  Speaker 1: after a President Malee's surprising victory in the midterms, this
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  Speaker 1: party's victor. It's also boosted investor confidence in his economic reforms.
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  Speaker 1: How do you view this market reaction.
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  Speaker 6: To be expected in the short run for a rallying
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  Speaker 6: of the market, So that's not surprising. The question is
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  Speaker 6: whether this is sustainable. The sustainability of this does not
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  Speaker 6: depend just on the feeble psychological expectations of investors. It
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  Speaker 6: depends on whether Argentina is capable to repay it's that
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  Speaker 6: that have been heavily increased by the funds that are
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  Speaker 6: being transferred by the IMF and the American government, and
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  Speaker 6: that depends ultimately on the ability to export and pay
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  Speaker 6: back investors. So whether this will be a success is
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  Speaker 6: still to be seen. I'm highly skeptical that it will
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  Speaker 6: be at the end.
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  Speaker 1: And Malay's approval rating had been slipping before elections. If
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  Speaker 1: you had turned on DW would have heard that it
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  Speaker 1: was unexpected that he would even get thirty five five percent.
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  Speaker 1: And yet he got forty one percent or his party did.
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  Speaker 1: How would you explain that surprising victory in these elections.
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  Speaker 6: So his popularity was falling. I think this was, if anything,
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  Speaker 6: it's it's a referendum on the fact that inflation did fall,
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  Speaker 6: and inflation fell fundamentally, although when he entered the government
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  Speaker 6: he accelerated inflation, but then he held the exchange rate
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  Speaker 6: and with that he managed to to you know, stabilize
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  Speaker 6: the economy. Inflation did go, as you know, it was said,
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  Speaker 6: from about two hundred and fifty to something like thirty
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  Speaker 6: percent period. It's still very high, but that showed up
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  Speaker 6: in the electoral sort of results. I think that that
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  Speaker 6: that's what this was, a referendum. His popularity was fallen
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  Speaker 6: exactly because in the last four or five months, the
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  Speaker 6: exchange rate you know again sort of depreciated and inflation
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  Speaker 6: went up a little bit, and I think it will
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  Speaker 6: go further up if he loses the exchange rate. And
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  Speaker 6: I think that that, you know, and the harshness of
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  Speaker 6: the fiscal adjustment, with the severe you know, increasing unemployment
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  Speaker 6: and poverty levels, it's what make him more unpopular. Still,
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  Speaker 6: his popularity was quite high, I should say by historical
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  Speaker 6: standards of a part you know, president in the midterm elections,
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  Speaker 6: he wasn't at the lowest level in our you know,
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  Speaker 6: since those polls are sort of taken, so he's a
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  Speaker 6: moderately popular. He had popularity of about, if I recall correctly,
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  Speaker 6: about forty percent. And so I think the surprise is
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  Speaker 6: that with the crisis, everybody expected and because Trump has
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  Speaker 6: had a negative impact on many elections, that he might lose,
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  Speaker 6: and he not only won, but he won in unexpected places,
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  Speaker 6: even in the province of Buenos Aires, which was highly unexpected.
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  Speaker 1: Well, let's talk about Trump's support there, because it does
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  Speaker 1: sound like what you're saying is, on one hand, voters
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  Speaker 1: wanted to give Milay a chance, or at least they
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  Speaker 1: saw some results from his radical economic reforms. But there
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  Speaker 1: was also the issue that the US had been supporting
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  Speaker 1: Argentina through thick and thin, and Trump hinted or threatened
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  Speaker 1: that he would withdraw this support of Malay didn't win.
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  Speaker 1: Do you think that that had some influence on the
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  Speaker 1: results of this election.
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  Speaker 6: It's hard to say that that kind of stuff, certainly
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  Speaker 6: to the extent that the Trump intervention allowed him to
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  Speaker 6: stabilize more or elastic change rate, you know, in the
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  Speaker 6: last few weeks before the election. I think that that
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  Speaker 6: was a positive, positive effect. Whether that, you know, was
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  Speaker 6: counterbalanced by the fact that some people might have said, well,
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  Speaker 6: you know, this is intervention in our economy, and that
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  Speaker 6: had a negative effect, It's hard to say. I think
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  Speaker 6: at the end of the day. What carried the day
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  Speaker 6: there was the relative stability. You know. Again, thirty percent
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  Speaker 6: is non stability, certainly not by German standards, but compared
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  Speaker 6: to the recent history of Argentina, you know, I think
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  Speaker 6: that that's what led to this surprising victory.
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  Speaker 1: And yet there are disgruntled Argentinian voters who have been
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  Speaker 1: affected by the deep austerity that Malay has used to
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  Speaker 1: bring inflation down. What do you think opposition parties need
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  Speaker 1: to do if they want a chance of beating Malay
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  Speaker 1: in twenty twenty seven.
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  Speaker 6: There's very little that it can do, I think in
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  Speaker 6: terms of, you know, managing the economy and showing different results,
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  Speaker 6: they had plenty of opportunities. I should say, Malay's policies
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  Speaker 6: are not new. They were tried in Argentina several times.
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  Speaker 6: This kind of the exact same policies, including you know,
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  Speaker 6: with the same economics team. His finance minister was the
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  Speaker 6: finance minister when Argentina went to the IMF in twenty
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  Speaker 6: eighteen in a previous government. So with the exactly same
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  Speaker 6: same policies as we have now, what I think what
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  Speaker 6: they do need is to be unified. The opposition got
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  Speaker 6: about malay got about forty one percent, a little bit less,
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  Speaker 6: and the opposition got a little bit, you know, less
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  Speaker 6: than thirty five percent, so the difference of six points.
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  Speaker 6: And what really failed was the center has collapsed. There
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  Speaker 6: was a part, you know, a new sort of coalition
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  Speaker 6: of governors that got only seven percent. And so I
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  Speaker 6: think a unified, sort of centrist sort of alliance would
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  Speaker 6: certainly have chances in two years, particularly if the economy
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  Speaker 6: stalls and does not grow.
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  Speaker 1: Mathias Ernico from Bucknell University, thanks for joining.
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  Speaker 6: Us, Oh, thank you for having me my pleasure.
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  Speaker 7: In Ico Alba is an Argentina expert at the Atlantic Council.
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  Speaker 7: He joins us from Washington. Welcome to the w Can
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  Speaker 7: we start with expectation, because this was a president elected
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  Speaker 7: with a significant mandate to successfully reduced inflation from triple
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  Speaker 7: to single digits. So why is the victory of his
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  Speaker 7: candidates and allies being described by so many medias against
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  Speaker 7: the odds.
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  Speaker 8: Thank you Phil for having me and thank you j
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  Speaker 8: Da for having me. Really it was a surprise result.
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  Speaker 5: The poll average that we were looking at in Argentina
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  Speaker 5: showed that the country was going to see two thirds
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  Speaker 5: sort of tie between the Parentis.
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  Speaker 8: Opposition and Malay.
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  Speaker 5: Recent backro economic indicators had indicated that, and trust indicators
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  Speaker 5: had shown that the country was somewhat polarized.
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  Speaker 8: Towards those two thirds, and that was really where the
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  Speaker 8: direction of the polling was.
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  Speaker 7: Now.
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  Speaker 8: Recent indicators as of last week started to show.
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  Speaker 5: That it was a trend change, with market confidence from
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  Speaker 5: consumers suddenly shifting in the last few weeks. Of course,
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  Speaker 5: those results came in for those indicators right before the election,
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  Speaker 5: so that really came in as a surprise to many,
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  Speaker 5: and it really has shaped to a result that has
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  Speaker 5: exceeded expectations and surprised many posters and reminding us that
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  Speaker 5: this is still a very evolving situation. Argentina is still
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  Speaker 5: traversing through a stabilization program that has oscillations and how
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  Speaker 5: the voters perceive it, and it really has surprised us
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  Speaker 5: many to see how strong.
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  Speaker 8: The performance was for the president's party, and.
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  Speaker 7: We're looking at a sixty eight percent turnout roughly in
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  Speaker 7: a country with a compulsory voting. So people will ask
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  Speaker 7: was this an election about a population positively backing a
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  Speaker 7: president who has brought austereotism in the country, or was
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  Speaker 7: it about disillusioned voters staying home.
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  Speaker 5: I believe there's a little of both, phil And if
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  Speaker 5: you look at the trend line of voting over the
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  Speaker 5: last few years, you will notice that Argentina has experienced
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  Speaker 5: us a constant but slight deterioration and participation levels.
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  Speaker 8: Voting is of course mandatory, but it is not enforced
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  Speaker 8: in practice.
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  Speaker 5: So election after election, with the constant stagnation of the
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  Speaker 5: argent economy and growing frustration by voters with different parties
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  Speaker 5: that haven't been able to group provide the results that
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  Speaker 5: they would like to see in the economy, you can
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  Speaker 5: see that many, many more people are dropping off from
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  Speaker 5: the participation, turning the country the facto from a a
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  Speaker 5: mandatory voting system towards a more optional in practice a
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  Speaker 5: voting system.
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  Speaker 8: And when you look at the results, there's a lot
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  Speaker 8: of both.
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  Speaker 5: Right, you have people who are dissillusioned as part of
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  Speaker 5: this broader trend line. And this is the result of
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  Speaker 5: that longer term trajectory. But you also have another dynamic,
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  Speaker 5: which is the polarization that I was mentioning earlier, which
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  Speaker 5: is that you see that there are two thirds that
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  Speaker 5: have consolidated, with Malay of course and his coalition having
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  Speaker 5: forty percent of support.
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  Speaker 8: But it's forty percent within a sixty six percent participation rate.
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  Speaker 5: So we'll have to see in the final general elections
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  Speaker 5: in two years what the number ends up being. But
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  Speaker 5: the trend line seems to be that the country is
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  Speaker 5: still very facmented, with half of the country supporting these
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  Speaker 5: reforms and the other half broadly coalescing around the parent's coalition,
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  Speaker 5: some other parties that might be more willing to negotiate,
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  Speaker 5: but that are still on the other side of the
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  Speaker 5: aisle when it comes to these reforms.
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  Speaker 7: And so how influential do you think was this Trump
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  Speaker 7: bailout and of course the promise of more if Mille won.
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  Speaker 7: Did they between them by these elections?
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  Speaker 8: I believe that the actual effect on the electorate wasn't
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  Speaker 8: as marked.
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  Speaker 5: I believe that you might have found some in the
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  Speaker 5: left side of the spectrum that how might been contrary
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  Speaker 5: to American intervention of the archdal economy. Who I might
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  Speaker 5: have been galvanized to come out and vote against what
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  Speaker 5: they perceived as an intervention. But on the center on
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  Speaker 5: the right, I don't believe that the intervention really had
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  Speaker 5: an effect on public opinion. It did, however, help to
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  Speaker 5: calm markets and to provide investors with the understanding that
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  Speaker 5: America was ready to assist with this swap line that
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  Speaker 5: Argentina has not yet actually activated. No resources have been
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  Speaker 5: used of that yet by Argentina, and it might well
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  Speaker 5: not need to if the country does its homework. But
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  Speaker 5: it did calm the markets, which helped to provide this
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  Speaker 5: easing off some of those consumer confidence indicators that I
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  Speaker 5: was mentioning earlier, which may have been in the final
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  Speaker 5: two weeks ahead of the election. What gave the government
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  Speaker 5: that boost and confidence it needed right before the midterms
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  Speaker 5: A quick.
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  Speaker 7: Word about what's to come, because the President has predicted
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  Speaker 7: the new look Congress will be the most reformist in
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  Speaker 7: Argentina sty So does that mean more austerity?
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  Speaker 8: I believe that austerity is not necessarily the ward for it.
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  Speaker 5: I think that right now we're looking at a situation
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  Speaker 5: that has broadly been stabilized and in which public spending
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  Speaker 5: has been slashed or liquefied, as I say, in Argentina
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  Speaker 5: through inflation, by not adjusting from inflation that's spending for.
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  Speaker 8: Over two years.
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  Speaker 5: Now, you see other indicators related to the government's own
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  Speaker 5: responsibility with its finances, its commitment to repaying its debts.
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  Speaker 5: So in the macroeconomic sense, there are many anchors that
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  Speaker 5: are really helping Argentina steer.
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  Speaker 8: And move towards in the direction.
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  Speaker 5: What I think we're going to see is that Argentina
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  Speaker 5: is now going to use this momentum to truly do
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  Speaker 5: the reforms that previous pro reform coalitions such as the
• 13:43
  Speaker 5: Unto port Gambio that President marcu Let we're unable to do.
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  Speaker 5: That is what the country needs for it to anchor
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  Speaker 5: its its future expectations and anchor.
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  Speaker 8: Long term growth.
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  Speaker 5: That is taxed reform, that is pension reform, that is
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  Speaker 5: labor reform. Those are the hard cutting, deep cutting reforms
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  Speaker 5: of the country needs.
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  Speaker 8: For what you need that that kind of transformation for
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  Speaker 8: the economy.
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  Speaker 7: Thanks so much for talking us through that, at Ignacio.
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  Speaker 7: Ignacio Alba from the Atlantic Council, thank you very much.