Hey everybody, good morning from chilly Colorado. The news today is that the Argentine government and its new President Javier Milei has launched with a gusto. In their first wave of reforms, in the first week on the job, they’re cutting the number of government ministries by half, they’re firing a lot of public service officials, they’ve stopped all public works projects until the budget stabilizes. And they have already devalued the currency by 50%. Nominally, the goal here is to get to a more stable situation where the country has little spare cash, it can buy up dollars on the international market, and then buy out with those dollars every single peso in circulation, so that the country can de-dollarize. And in theory being that future governments then will be forced to actually act within their means, because there’s a massive budget deficit, and the previous government has been printing currency like mad, leading to hyperinflation. And I think it’s something like 40% of the population of Argentina is in poverty.
Now, two reasons that this matters. Number one, Argentina is a country that I expect to be doing fairly well in the future, not because of its government, because of its geography and demography. It has a larger proportion of young people than almost any country, not just in its pure class, but in the entire advanced developing, mid-developing, and of course the advanced world, so a lot of the problems that everyone is dealing with, with say pensions as mass retirements hit the workforce, that just doesn’t apply in Argentina at all, and it won’t for decades.
Second, Argentina has got a pretty sweet spot on the planet. It’s got great arable land, great navigable rivers, pretty good infrastructure, its educational system is top notch, they are arguably the most skilled country for their peer class as well. The problem has always been Peronism and the government. Now, if Milei can fix a few things, then great. But I think the other reason to look at this is in the world we’re moving to, as it deglobalizes, a lot of countries are going to be watching the Argentinian experience very closely, not because they have a similar political culture or geography or economy, but because as trade breaks down, the ability of countries to maintain soft currencies at all is going to be somewhat limited. And the past for Argentina, with hyperinflation, government intervention, massive intrusion to the economy, authoritarian systems, and printing currency, a lot more of that is going to happen. And the more logical path for countries who decide that they don’t want to be destitute and economic basket cases will be to attach themselves to a more potent country with a more stable currency regime and economic structure. That means doing something like dollarization, although it doesn’t have to be the dollar, it could be the yen, it could be the rupee, it could be the pound, you know, there are other options out there. But this sort of coalescing into currency blocs and trading blocs and security blocs is the most likely outcome of all of this. So I’ll be watching Argentina very, very closely to see what they get right, see what they get wrong, see if this is a beautiful experiment or a beautiful disaster. It’s just way too early to know right now. What we do know for sure is that the Argentine system before Milei was broken. We will now find out if it’s broken beyond repair.
