Milei and the World

Lea esta entrevista en español aquí.

It didn’t take long for the new President of Argentina, Javier Milei, to don gloves in the international arena and showcase his libertarian approach to foreign policy. Some political gestures have already stirred conflicts with Brazil and China—the country’s two most significant trading partners. In December, Milei invited former Brazilian president Jair Bolsonaro to his presidential inauguration, and last month, his administration initiated relations with Taiwan by arranging meetings with representatives from the Taiwanese trade office and Taiwan’s representative in Buenos Aires.

Identifying as an “anarcho-capitalist,” Milei aims to strengthen ties with what he calls the “free world.” However, this ideological rerouting of Argentina’s foreign policy clashes with very particular dependency relationships, mainly with the International Monetary Fund (IMF) and China. Milei’s early confrontations with other leaders in the South American region and his immediate distancing from forums like BRICS and Mercosur (the Southern Common Market) indicate his desire to swiftly choose his adversaries. These conflicts could prove costly. 

To better understand the initial steps of the Milei government’s foreign policy, we spoke with Maia Colodenco, Head of the International Affairs Unit at the Ministry of Economy of Argentina in 2019 under Alberto Fernández’s government. She represented Argentina at the G20, worked as a consultant for the Inter-American Development Bank, and served as Principal Advisor to the Executive Director for Argentina at the World Bank in Washington.

An interview with Maia Colodenco

CAMILO GARZóN: Some members of Milei’s economic team have already been announced. They include economic advisors who previously worked with Macri, such as Luis Caputo, the Minister of Economy, and Santiago Bausili, head of the Central Bank of Argentina. How do you see this initial circle of economic advisors?

Maia colodenco: Milei undeniably came to power by winning the runoff, but he needed coalition forces to help him achieve that victory. On the one hand, this points at a certain negotiation of continuity with those forces that aided him in gaining power. On the other hand, considering the country’s current economic situation, I think Milei now recognizes the need for a certain macroeconomic pragmatism in contrast to his campaign rhetoric. It is a lesson learned from when Macri came into office, introducing shock policies that did not turn out well in the end.

There were certain macroeconomic imbalances at the end of Alberto Fernández’s administration that needed resolution—imbalances that persist and have not been addressed yet. The analysis of exchange rate issues is still valid, and it requires a revision of the foreign exchange clamp (a set of restrictions on access to foreign currencies in Argentina), which was implemented in 2011 and is still in effect. There is still no clear policy on how they will structure local currencies alongside the dollar. Faced with these challenges, instead of dismantling the Central Bank of Argentina, they appointed Santiago Bausili, well known in the market sector, as the Bank’s President. This reflects a certain pragmatism and, in a way, hints at a tendency or focus towards dollarizing the liabilities of the Central Bank and eventually dollarizing the whole economy.

So, while I can see some shock policies in other political areas, at least in terms of the economy, the continuity of certain figures within the sector may indicate a pragmatic approach. The negotiation of external debt with the IMF is likely playing a role in how this macroeconomic decision aligns with continuity measures.

CG: How do you this government will navigate renegotiating the external debt and the country’s relationship with the IMF?

MC: Negotiations with the IMF are always complicated, but we need to consider the precedents. Back in 2018, the Macri government took on the largest debt in the history of the IMF, which was also the most significant credit assumed by the government in the entire history of Argentina, amounting to $45 billion. In that sense, I believe that it is also in the IMF’s best interest to resolve the matter and maintain good terms with Argentina.

During Alberto Fernández’s government—which I was part of—Martín Guzmán, the first Minister of Economy, renegotiated the debt with the IMF in a way that served Argentina well, in my view.¹ The restructuring didn’t involve austerity measures; it allowed for debt refinancing without any labor reforms or privatization of state-owned companies. It curbed spending without being regressive. Unlike cases in other parts of the world, Guzmán initiated the negotiation by approaching private creditors with an analysis of restoration and sustainability based on maturities, and later negotiated with the IMF. This was a new strategy, and it proved successful. In contrast to some of the current policies being promoted, we believe that the program negotiated by Martín Guzmán aimed for a gradual adjustment, one which depended on how various factors had evolved in Argentina, while also including the issue of reducing IMF surcharges on the agenda.

Now, the IMF clearly wants the numbers to add up and doesn’t care about what happens to the people in the country. For this government, Milei’s most recent mission objective—led by Luis Caputo and Chief of Staff Nicolás Posse—is to renegotiate the initial maturities of the debt that Argentina holds with the IMF, totaling $1.95 billion. Nevertheless, the impact of the new internal measures proposed by Javier Milei, currently being discussed in Congress, still need to be assessed, as they could also affect negotiations with the IMF.

Among these measures are reforms to people’s pensions and the reduction of social plans, which together constitute a significant portion of public spending. There are also proposed reforms to healthcare systems, as well as everything related to reducing electricity and transportation subsidies. These reforms indirectly affect the relationship with the IMF insofar as they aim to reduce public spending with these adjustments, aspiring to achieve their fiscal deficit reduction goals. Depending on which variables they touch, whether these goals are achieved through increased employment or through less consumption and fewer economic stimuli, the impact may vary. In any case, the IMF will clearly commend Milei if fiscal deficit reduction is achieved. I don’t think they care how it’s done as long as the numbers show improvement.

CG: On the other hand is Argentina’s presence in certain global economic forums. How do you interpret Milei’s recent speech at the World Economic Forum at Davos?

MC: I think it stems from a misguided and outdated diagnosis of the current state of affairs—something from another era. For instance, there are aspects of his speech which I think no longer hold. He claims that the West has failed economically, but he doesn’t offer an alternative. If he is referring to the economic model of Southeast Asia, then that’s not a model he seems to admire. In that sense, we see a bit of a contradiction and a world of categories that harken back to the Cold War, as if there were still a sharp division between East and West. The world is currently multipolar, with actors much more atomized and a more conflicted globe, but the answer to our problems is definitely not a crusade against socialism, as he presents it. I also think the diagnosis is mistaken on Argentina’s self-awareness regarding its national and international role. In a Latin American context, a country like Argentina is far from insignificant, but it is not a systemic player in the broader context of the international economy. 

An important trend in today’s international stage is the significant weight held by the private sector. Meetings like Davos have become very important, especially for influencing discussions on debt restructuring. The country needs to understand that it is not only engaged in relationships with state actors; there is a private sector that now holds as much influence as some states in various areas. However, this doesn’t mean Milei should solely focus on private entities as independent and self-sufficient units. Many developments, such as those occurring in the electric car sector, were driven by extensive state development agendas and investments. Someone like Elon Musk can praise entrepreneurial initiative all he wants, but his growth in various sectors has been considerably facilitated by the state. In that sense, when Milei’s discourse celebrates entrepreneurs unilaterally against the state, I cannot avoid perceiving contradictions. I believe he misunderstood the Davos audience, which consists of both types of actors—entrepreneurs and state representatives.

CG: I find it interesting how Milei is already hinting at an alignment with the United States and Israel, while also distancing himself from Brazil and China. How do you think these changes affect Argentina’s presence in a group like BRICS?

MC: The Argentine government has already formally announced that it has declined the invitation to join BRICS. Consequently, Argentina will no longer be part of a group that is key in parallel diplomacy to institutions of the global North. As I mentioned earlier, it would clearly benefit a country like Argentina to be involved in more international forums, especially economic ones. Participation in these forums can foster useful diplomatic and power dynamics, which can even influence support for various agreements. 

In Alberto Fernández’s government, for example, we worked extensively in the G20. Many of the agreements we reached there were then extended to the IMF or the UN. All of that bespoke work contributes to building relationships with other states. In that sense, I believe it is a mistake not to participate, and I also think Milei is grounding this form of distance in a misguided diagnosis which leads to a diplomatic overreaction. Even the US State Department has affirmed that it would never ask countries not to join BRICS.

Looking at Milei’s withdrawal from potential membership, I think his opposition was more strongly triggered by Iran’s recent inclusion in the BRICS forum than by a formal distancing from China. But even so, it is still an error—Argentina needs to improve trade relations with Brazil and China, its main partners. 

We still need to wait and see what happens to Mercosur, since formal meetings have yet to take place. The Minister of Foreign Affairs, Diana Mondino, recently met with members of that forum to negotiate a free trade agreement with the European Union—this is despite Milei stating last year that Mercosur should be abolished because it was a defective customs union. Statements by Mondino are more nuanced; she speaks about “modernizing” Mercosur and says that the four member countries must reduce the number of customs barriers between them. On another front, regarding the Organization for Economic Co-operation and Development (OECD), Argentina will surely insist on joining—the question there is whether the OECD will accept its entry or not. 

I believe Argentina should not have to choose between one forum or another. It could have a presence at both. However, it’s been Milei’s political decision to choose between the two. In my view, this decision seems to stem from an exaggerated line of action that had never been explicitly requested. Argentina has never before had to choose between China and the United States.

In fact, we have historically had a very good financial relationship with the Chinese government through their swap agreement with the Central Bank of Argentina, which has been crucial for these countries’ economic relations. At the same time, the agreement with the IMF has also been very important. This shows that we can maintain very suitable agreements with the United States that are not incompatible with keeping good relations with China.

CG: Can you elaborate on Argentina’s relations with China and Taiwan?

mc: Argentina has always adhered to the One China principle. In our region, only Paraguay has expressly recognized Taiwan as an independent state. Since 2012, the relationship between Argentina and China has evolved, marked by increased investments in infrastructure. Just between 2007 and 2020, Argentina received $10 billion in investments from Chinese companies, primarily focused on energy, mining, and the financial sector.

Historically, Argentina has maintained a strong and positive bond with China. The trade volume between the two countries has been a key element. As our second-largest trading partner, the possibility of having a credit line for commercial transactions has been crucial. This arrangement has allowed us to bypass the direct use of the dollar in currency exchanges—hence our growth in trade volume. Additionally, China has played a significant role in supplementing Argentina’s international reserves through the swap agreement. Additionally, there are major infrastructure projects in Argentina that are funded by China, including railways and dams in Santa Cruz. Many of these investments are related to logistics for exports and, in general, focus on infrastructure development.

Sure, if one looks at the places where China has been directing its major interests over time, the role that Argentina plays in Chinese investments has somewhat diminished. However, Argentina still remains among the top three recipients of direct foreign investment in Latin America. In that sense, I believe that this shift in opinion regarding China has not worked well; it is evident that Argentina does not stand to gain from losing the Chinese market, or even simply from facing the risk of losing it.

CG: Let’s talk about the case of Brazil, Argentina’s main trading partner. How do you see this relationship developing with both governments holding such divergent political positions?

mc: Under Alberto Fernández, the national government made efforts to strengthen Mercosur. We believed that Mercosur needed to be modernized and made more efficient, while still safeguarding this crucial alliance between neighboring countries. I think that Lula will now be the guardian of that relationship, responsible for preserving Mercosur as a framework, though I suspect he doesn’t want to explore the possibility of creating alternate regional institutions at the moment.

As to our direct relations with Brazil, the situation is now obviously different from the time when Bolsonaro was in power. Back then, even without a friendly relationship, many connections were well-kept. Since Brazil is a strategic and historical partner, we cannot afford to lose sight of our mutual identities. But Milei has already shown that he can take a more confrontational stance. He has already withdrawn Argentine ambassadors from Nicaragua, Cuba, and Venezuela, and he is currently in a dispute with Petro, though only on social media for now. 

CG: Milei has arrived at a juncture where his ideological counterparts, such as Donald Trump or Jair Bolsonaro, are no longer in power. In Latin America, there was a period when left-leaning policies converged among governments in countries like Venezuela, Argentina, and Brazil, eventually leading to regional institutions like UNASUR (the Union of South American Nations) and BancoSur (the Bank of the South). Do you think something similar might happen if Milei finds regional counterparts that are consistent with his libertarian policies?

mc: I haven’t seen any indications that Milei wants to create something similar to what existed during the so-called “pink tide.” It doesn’t mean it couldn’t happen eventually, but from what I see in the case of someone like Milei, who is a somewhat anti-institutional character, is that it would be more challenging for him to develop a similar regional institution. He is more skeptical of all these multilateral environments, not unlike Trump and Bolsonaro. The three share a diplomatic tendency to withdraw from various multilateral forums.

Milei’s bilateral relations often lack pragmatism, although he has demonstrated some realism on certain macroeconomic issues. We will see how some aspects of international politics realign, but I believe that Argentina should neither remain in international conflicts nor overreact to them. 

This interviewed was translated from Spanish for Phenomenal World by Eduardo Gutiérrez.