Argentina: the good, the bad... and the ugly
Plenty of reasons to be optimistic, but let's not get misty eyed.
In this update:
Milei's latest trip to the US: flying the flag (and ringing the bell) at the NYSE, meeting new best buddy Elon Musk, and sticking it to the big-state "collectivists" at the United Nations.
The good things happening in Argentina: ongoing progress and future potential
The bad current situation: serious, on-the-ground challenges in the present
The downright ugly (not to be forgotten): many serious internal fights with old-model vested interests, ongoing or upcoming
Exciting and interesting times, but let's not get carried away (yet)
In a world that is drowning from oversized and bankrupt governments, Argentina is getting a lot of attention these days. That's since "liberal libertarian" President Javier Milei took power in December, with a very different vision of how to govern a country.
I've now lived in Buenos Aires, the capital city, for 16 years. So I provide periodic updates about what's really happening on the ground. This one is longer than usual, as I had some other priorities, and there's been a lot happening here on the ground. Something to read at your leisure over the weekend, for anyone interested in the benefits of freedom, capitalism and smaller government.
Western mainstream media has a lot to say about Milei. But almost all of it is pea-brained and uninformed commentary, and so can be ignored. If you ever see Milei described as "far right" or "hard right" then you can instantly dismiss everything said by the dim-witted journalist (or their editor). They obviously haven't got a clue, or they have an anti-freedom agenda (leftists, usually).
What is true is that Milei is "anti-collectivist", meaning he doesn't like big-state political ideologies, either in theory or in practice. That includes communism, socialism, fascism and globalism.
Yes, that's correct. Milei is not on the "far right". He detests them just as much as he detests leftists.
The reality is that Milei is fervently in favour of small government (the less, the better), lower public spending, lower and simpler taxes, less regulation, and restoring maximum freedom to individuals and businesses.
As well as respect for all (men, women, the confused), freedom of speech, maximum liberty to interact and transact as people wish. The only limit on liberty, in an ideal world, being a principle of non-violence. In other words, do what you want provided it doesn't hurt other people, or impinge on their own liberties.
To give one example, people should be free to protest if they want. Just don't vandalise property, or block roads and stop other people from going about their own business. This is something that Milei's government has largely tackled, in a country that was blighted by endless roadblocks by whichever violent group of leftist agitators happened to have a gripe that day.
Overall, Argentina is undergoing a major cultural change programme, and not just an economic one. It's about weaning people off the state, while also weaning the state off the people.
Argentina is a country that was drowning in economic interventions, price fixing (either high or low), absurd taxes, capital controls, deep-seated corruption, vested interests, inefficiency, unnecessary poverty, and all the other things that go hand in hand with big government.
Milei's aim is to root out "la casta" - the corrupt and privileged caste of statist, insider parasites - in all its forms. This includes bent politicians, of course. But it also includes many business people that paid for favours, media organisations that lived off the teat of the state, labour unions that operate like protection rackets, sports moguls (principally football), publicly-funded departments that did nothing except exist(ed) to provide money and jobs for political activists, and "social organizations" that stole government welfare money and food packages destined for the poorest, while pretending to be worthy.
In other words, the rot runs deep in Argentina. Which means the problems won't get solved overnight.
That said, for the first time, I'm cautiously optimistic about the country's future. Argentina is the eighth largest country in the world, behind 7th-placed India, but with a population similar to much smaller Spain. It's rich in natural resources (oil & gas, farmland, copper, lithium, fishing grounds, etc.), almost all of which have suffered from severe underinvestment, due to the unfavourable and uncertain prior political environment.
Argentina now has the most pro-capitalist government in the world.
This is no small thing. In fact, it's a fabulous thing. And it's certainly not something that I ever expected to happen here.
But it should make all investors sit up and pay attention. That's why I wrote about one stock traded in the US that provides exposure to Argentina's potential economic turnaround, and possible boom (see here for details).
In fact, in recent days, I've been trawling through the Argentina stock market to see if there are more opportunities. For overseas investors, without an Argentine brokerage account, there are only a couple of dozen stocks to pick from.
Most are already very overpriced for the environment, in my judgement (e.g. the four bank stocks), or operate in sectors with very uncertain outcomes in this market (e.g. utilities), or there are better companies listed elsewhere (e.g. oil & gas), or it's just impossible to analyse them due to peso financial accounts in a very high inflation environment (meaning the latest reported figures are barely relevant any more).
I've narrowed it down to a remaining shortlist of two. One could be attractive right now, perhaps trading at a huge discount to fair value. But, despite an apparently fairly obvious reason to own it, it's complex to pick apart (more than some may believe), and I need to find at least a couple of days to spend on it.
The second is in a depressed sector that could bounce strongly if the economy turns around. But I'd rather come back to it in six months or so, assuming inflation keeps falling and it becomes possible to decipher the financial accounts once more. I'll also keep an eye on the Argentine banks, which have good business prospects but severely overpriced stocks. I'll take a closer look if their stock prices crash (perhaps in the order of 50% down from current levels).
In the meantime, the Argentine stock that I wrote about in May is up over 14% since then (dollar price), it's already paid a 6% dividend on top, and appears to have a bigger dividend on the way in the next couple of months (exact amount to be confirmed).
But let's get back to the big picture in Argentina... and the world.
Capitalism is the only known and proven way to lift the masses out of poverty, and improve people's standards of living. Every high-income country got there via capitalism, even if most of them seem to have forgotten that these days.
Meanwhile, every socialist or communist regime has led to failure, oppression, and even more poverty. This combines with rampant corruption, as politicians and bureaucrats exploit oppressive laws and regulations to line their own pockets. Want approval to do something? Then show me the money, but under the table.
Unsurprisingly, Argentina's sudden turn of events has attracted a lot of global attention. That's both from those that want it to work, so that other countries can sit up, take note, and perhaps set themselves on a better path. But Argentina is also firmly in the sights of the enemies of freedom. Those that believe that big, bloated, global government is the only way forward, or that are themselves riding the big-government gravy train. Choo choo!
Although Argentina has the most pro-capitalist government in the world - led, importantly, by someone that isn't afraid to say as much (a rare breed these days) - it certainly doesn't mean it has the freest economy.
It's very much still work-in-progress. But progress is indeed being made. However, Argentina watchers shouldn't get too excited yet. Milei may have headed off the tragic downside of a hyperinflationary meltdown. But ordinary people are yet to feel the economic upsides that should flow from a freer market economy.
The big question is whether voters feel the benefits in their daily lives and pockets soon enough to keep the project on track. The truth is that it's too early to tell.
Which is why I thought it would be a good to time to have a bit of a reality check. So let's look at some recent developments, grouped under the good, the bad, and the ugly of the present situation in Argentina.
The good things happening in Argentina
From a budget deficit that was running at 5-6% of GDP per year, Milei's government achieved a balanced budget in January, the first full month of their administration. That was a staggering achievement.