Dollars under the mattress: Argentina facing itself
There's a side of Milei that's elusive, even to those who craft her political strategy . The day before yesterday, hours after the failure of the clean slate, Santiago Caputo's recommendation to the President was still to avoid responding to Silvia Lospennato, who has since accused him of having colluded with Kirchnerism to overturn the law. The advisor believes that attacking her or even naming her so close to the Buenos Aires elections only serves to give credibility to the Pro candidate. But it was impossible: that's where the Libertarian leader headed. "I'm deeply disappointed by Lospennato's open lying," he said, attributing everything to a Pro operation.
"There are things that are beyond our control," the campaign team explains . Milei is Milei in every way. For the Buenos Aires battle, the government's plan remains to take the discussion to the national level: "Kirchnerism or freedom." They have decided to challenge the PJ's votes directly and, therefore, intend to speak about Pro only when necessary. Adorni's opponent will not be Lospennato, but Leandro Santoro, whom the Libertarian team has seen leading in the polls since the beginning of the campaign but, they add, also stuck at a ceiling. They say they are still about four points behind the former Radical candidate and, therefore, anything they manage to take away from him in this head-to-head battle in the communes will count double.
But with Milei, spontaneity rules. And every strategy is built around the leader's personality, which is then tested: what adds value and should be exploited or enhanced, and what subtracts and should be avoided. The President actually brings this asset from previous campaigns; the only change is that it has also served him well in governing, something that wasn't so clear before he came to power. It was that same brutal style that allowed him, for example, to achieve, with a minority in both chambers, a fiscal surplus that was unprecedented in history and one that almost no one in the establishment believed in. They say that when Luis Caputo, still in the 1990s and weeks before the first round of elections in 2023, went to show Milei the 5-point GDP adjustment program he had devised at the consulting firm Anker, the latter sent him to speak with Arriazu. And even Arriazu hesitated: it seemed difficult to implement. But it was ultimately the plan Milei ended up implementing and the one the market values.
The other distinctive feature of the presidential imprint is that it has extended to officials who weren't like him. "Toto Caputo doesn't look like Toto," say those who have known the minister since his days as Pro. Sometimes businessmen don't know how to approach him. On Wednesday, for example, the head of the Treasury was scheduled to speak at a luncheon before the Inter-American Council of Trade and Production (CICYP) at the Alvear Icon, a visit he had confirmed two months in advance. But he changed his mind when he received the speech that morning from Marcos Pereda, president of CICYP and a representative of the Rural Ministry, who would welcome him: the message included complaints about export taxes. Caputo reacted then and, annoyed, decided not to go. His argument, which he later shared in private, was that he believes the most distorting tax is not the taxes on exports but on Gross Income, and that Pereda's words would force him to spend half his time answering him. “I have nothing to gain by going; I have a lot of work to do,” the minister is reported to have said, and then announced he wasn't going. Shortly after, he received a call from Pereda, who tried to negotiate. But it was no use: Cicyp had to invite another Cabinet member, Federico Sturzenegger, at the last minute. Sturzenegger delayed another lunch with economists to spend a few minutes at the Alvear and then left without eating. Sturzenegger listened to the withholdings in a more cheerful mood, but still delivered the government's message: “All taxes are distorting. Don't ask me to lower taxes, ask me to lower spending: when an administration spends little, it can return it in taxes. We need you to be partners in the chainsaw.”
For business leaders, it's a completely new logic. They were used to interacting differently with governments, generally dealing in person with each official and discussing sectoral interests on which profitability often depended. And now, not everyone is always accessible. Much less the President. Paolo Rocca, for example, has yet to meet in-depth, one-on-one with Milei. That's why corporations sometimes become disoriented. How to navigate? What should be, for example, the new profile of Cicyp, which will renew its leadership in a few weeks? A few days ago, at a luncheon at River Plate's stadium, a group approached Eduardo Eurnekian and advised him to directly assume the presidency of that chamber. There was no game that day: Jorge Brito, host and club president, and sector leaders such as Gustavo Weiss (Construction), Adelmo Gabbi (Stock Exchange), and labor activist Funes de Rioja were there. Is it enough to appoint the person who knows the President best because he was his employer? Or would another alternative, Betina Bulgheroni, who has a good relationship with Karina Milei, be better?
Not everything seems so clear or so spontaneous . Furthermore, if the government truly defeats inflation, the problems will be very different: margins will shrink, and costs, taxes, wages, and infrastructure will have to be discussed. A competitiveness that, with a strong peso, will not be resolved by raising prices either. Alfredo Coto knows this well, having participated in meetings in which the Minister of Economy has recently urged supermarkets not to validate manufacturers' markups. The last one was on Tuesday. These are meetings in which nothing is left over, much less stock, and whose effectiveness will be tested again next week, when it becomes clear whether the sector is in a position to meet the government's demands: no price increase, or they will take the merchandise back to their factories.
All of this remains to be seen, because some suppliers feel they already made an effort to maintain prices in April after the end of the restrictions and hope that May will be different. "There's no macroeconomic reason to do so," Caputo stated on Tuesday. But the negotiations, which he doesn't see, have become tense. Phrases resembling ultimatums are heard. "This is as far as we go." "We'll hold out as long as we can." And so on.
Caputo has already exposed several companies on Twitter. "I think he's doing it right," they said on a channel, where they assume that the shift in mentality toward competing by volume, not price, will take years. What drives the minister to try to rush things along the traditional path, when an orthodox figure is supposed to know perfectly well that reducing the surplus of money will lead to results? In reality, certain that his model is deflationary and that he won't make concessions on issuance, and until he can initiate fundamental reforms that make Argentina viable, his fear lies rather in the fact that these increases won't be validated by demand and will dampen consumption.
It would be a high cost. The government has begun to raise this issue, more or less subtly. Milei said so the day before yesterday at the Latam Economic Forum. “As long as there is still money overhang remaining, we won't have a monetary strangulation problem. But at some point, the money overhang will run out, the exchange rate will hit the floor of the band, and at the pace at which we can monetize—and we don't know if we'll do it well—it may not be fast enough, generating a high interest rate and ending up slowing the level of economic activity. And it could be a drag on growth because it requires deflation.” Some were surprised. “How wonderful that you're raising this so openly,” they said upon hearing him.
For now, still far from the October elections, which could change the makeup of Congress, the government is banking on a palliative it hopes to announce next week: the use of dollars that savers have in their mattresses. The great metaphor for the lack of confidence in the country. "Let the Argentines themselves monetize the economy," Milei proposed, based on the idea that decades of scams led savers to hedge against inflation by going to the banks. The President believes this shift from white to black was forced and therefore should not be penalized. His proposal aims to reformulate regulations of the UIF, the ARCA (Argentine National Accounts Agency), and the Central Bank and has no exchange rate objectives: only to spur activity.
But these are modifications that don't make for a true transformation, which will come the day a new Congress allows him, for example, to begin with the first in a sequence of measures: a labor reform that makes collective bargaining agreements more flexible, which currently force many employers to work illegally to survive. The real country. Sturzenegger said it at the Cicyp (National Commission for the Promotion of Labor and Social Development): "An informal company is a company that cannot grow." It will be the big discussion of 2026. Until now, all the inefficiencies have been disguised with inflation. If, as the market projects, another model is truly launched, we will have to work harder. That Argentina is still under the mattress.
lanacion
