In a series of articles published last summer, we identified 2024 as the year that could change the fate of the world. In Developed Markets, there will be elections in the US, EU and the UK, and in Emerging Markets there will be elections in India, Russia and Taiwan, to name only a few. We discussed how, with two wars still ongoing in Ukraine and Israel, a third front may be opening in Taiwan, with the window between the Taiwanese elections and the US elections representing an opportunity for China to continue destabilising its breakaway “province.” With just over a month to go before the beginning of 2024, 2023 is providing electoral results that may impact sentiment in the new year.
In Argentina, Javier “El Loco” Milei has been elected President, interrupting the long dominance of Peronist leaders that have governed the country in the last few years (with the brief interval of the moderate conservative government of Mauricio Macri). In our preview, we discussed the electoral platform of the newly elected president, and of its political movement, La Libertad Avanza (LLA). Milei is considered a political leader who is between former Brazilian President Jair Bolsonaro and former US President Donald Trump, and in effect his proposals have a populist bent that is hard to ignore.
Here we would like to focus on just one of these proposals: the abolition of the Argentine Central Bank (Banco Central De La República Argentina, BCRA), to be replaced by the full dollarisation of the economy. The project does not make economic sense and is unfeasible, but it attracted the favour of voters, who are exasperated by levels of inflation that has reached 140% recently, and has been above 20% since 2015.
The project makes no economic sense because the monetary policy decisions that have been widely criticised by the Argentinian people, which are the basis of the request of the abolition of the BCRA, would instead now be made by another central bank, the US Federal Reserve, over which Argentinians would have no control. Moreover, the Fed is there to make decisions for the US, not for Argentina: the US is an expanding economy with a falling level of inflation, while Argentina is a contracting economy with rampant inflation. It’s hard to see how the Fed could make decisions that are good for the US and Argentina at the same time.
The project is unfeasible because Argentina is not a small country at the doorstep of a large continental economy, as Ecuador could be for the US or Montenegro is for the EU, two examples of countries that have chosen to adopt the currency of the much larger economic neighbour, which their economies are dependent on. Argentina is a large economy with 46 million people: there aren’t enough US dollars in circulation to accommodate that request, and the Fed is not going to print them just to please Milei. Yet these nonsensical economic proposals managed to attract the majority of voters and propel Milei to the Presidency. Luckily, the limited presence of LLA in Congress (only 35 deputies out of 257) will make them harder to implement, but one can be sure that a few years of Milei in government will produce a permanent economic and social damage to the country.
In the Netherlands, the nationalist and populist leader Geert Wilders won the election held last week, with his PVV collecting 23.6% of votes (much more than the socialist and conservative opposing parties, which are stuck at 15%), thus electing 37 MPs in the 150-seat House of Representatives. Wilder’s populist anti-Islamic and anti-immigration slogans have convinced a large segment of the Dutch population to give him a chance to govern. The other parties may coalesce to keep him out of power, but this would make his party even stronger at the next election.
In a recent column, we discussed the victory by Robert Fico in Slovakia, who ran on a populist anti-EU and pro-Russia platform.
These examples are not a good harbinger for the coming elections in 2024. If populist leaders still manage to be so attractive for the electorates of developed and sophisticated nations, the return of Trump as president in the US one year from now is becoming increasingly likely, with polls showing that he is getting a lead over Biden since the beginning of the war in Israel. And if Trump wins again, the macroeconomic and geopolitical implications would be profound.
