On reflection, Joseph Schumpeter is all well and good – but only for others. Javier Milei, Argentina's libertarian president, an ardent advocate of the free market and the "creative destruction" championed by the early 20th-century Austrian economist, has just been saved at the last minute by an intervention from Donald Trump.
For several days, Argentina appeared to be returning to its old troubles. The peso was plummeting, the stock market as well, and the country's dollar reserves were running dry. Investors became increasingly worried after Milei's political camp lost local elections in Buenos Aires, amid a corruption scandal – a poor omen for the midterm legislative elections scheduled for October 26. From their perspective, the risk was that the end of the harsh economic medicine Javier Milei had forced on Argentina since taking office in late 2023 was in sight.
On Monday, September 22, the United States put an end to the panic. Scott Bessent, the US Treasury secretary, stepped in, writing on social media that "Argentina is a systemically important US ally (...) and the US Treasury stands ready to do what is needed within its mandate to support Argentina." He said he was prepared to provide dollar liquidity or to buy Argentine debt. The details were to be finalized on Tuesday, September 23, during a meeting between the Argentine president and Trump in New York.
A chainsaw
The effect was immediate – the markets rebounded. "Huge thanks to Secretary Scott Bessent and President Donald Trump," Milei said. He then added his usual rallying cry: "Long live freedom, damn it!" In this case, it is more of a government bailout, forming a de facto alliance between radical right-wing leaders.
It would, however, be too simplistic to caricature the situation. Since the hyperinflation of the late 1980s, Argentina has never managed to sustainably stabilize its economy. In desperation, the people turned to this populist, who brandished a chainsaw at his inauguration, promising to make deep cuts to what remains of the welfare state.
He kept his word, slashing spending on education, research, infrastructure and social assistance. Milei has turned his country into an economic laboratory by drastically reducing the role of the state. Inflation appears to be coming under control, falling from a peak of over 200% two years ago to around 30% on an annualized basis. The country also secured a major additional loan of $20 billion from the International Monetary Fund (IMF), thanks to support from Washington. With strong backing from Trump, Milei holds a decisive advantage. It is a far cry from his laissez-faire ideology, but far more effective.