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Perón, The Central Bank, And The Argentine Elections

Argentina was once one of the wealthiest countries in the world. Though it has been on a downward spiral for eight decades, it still represents approximately 15% of South American GDP. However, a new axis of evil (leaders of countries governed by reframed socialists, narco-capitalists, and radical Islam) has strong allies in most countries in the region and needs Argentina to stay in their “club.” They will likely face a setback in the upcoming presidential elections.

The Argentine presidential election has three leading candidates: Patricia Bullrich, Sergio Massa, and Javier Milei. It will take place this October 22. If the top candidate reaches 45%, he will be declared the winner; if he fails to reach that threshold but reaches 40% and receives 10% more than the second, he will also be declared the winner. If neither of these thresholds is met, the top two vote-getters will go to the second-round vote on November 19.

Patricia Bullrich is running third in the polls. In her late teens, she was part of the terrorist Peronist Montoneros movement. She reformed and gained a significant reputation, even beyond Argentine borders, in national and homeland security. She is also tough with the Peronist powerful labor unions. Beyond homeland security, she and her coalition, Juntos por el Cambio (United for Change), promote most of the goals of the Agenda 2030. Her achievements in public service during these last decades have earned her respect and the leadership position in her coalition. In a last minute move, she appointed Horacio Rodríguez Larreta as potential future chief of staff. Rodríguez Larreta implemented Peronist-type populist policies to govern the city of Buenos Aires, the least Peronist of all the voting districts. Rodríguez Larreta lost against Bullrich in the Juntos por el Cambio primaries. It was a big blow to his ego. Thinking that Rodríguez Larreta voters will remain loyal to him, Bullrich has made a pact with her past primary opponent. The rising libertarians dislike Rodriguez Larreta, but many Peronists might vote for him, so this has been a gamble by Bullrich.

Running second in the polls is Sergio Massa, the current minister of economics and the Peronists’ favored candidate; he entered politics as part of “Union of the Democratic Center,” the pro-free-market party founded by Alvaro Alsogaray (1913-2005), a member of the Mont Pelerin Society, the classical liberal organization founded by F.A. Hayek. Massa later joined the Peronist movement and has often switched sides within different Peronist camps. As the current economy minister, Massa presides over one of the worst periods of stagflation in Argentine history.

Javier Milei is leading the polls. He is something of a mixture of Donald Trump and Murray Rothbard. Some argued that Trump entered the 2016 race as a tease to show the lies in the political scene, and his success encouraged him to do more. Similarly, critics from Juntos por el Cambio argue that Milei is an instrument placed by the Peronist status quo to divide the opposition; even if that were true, they would have expected that he would get at most 10%, not be leading in the polls. Now that he is polling first, incentives have changed; Milei has committed to appointing several pro-free economy figures in cabinet posts. His candidate for foreign minister is Diana Mondino, an economist with an MBA from IESE, one of the top ten business schools in the world. She is an expert on risk assessment. For culture and education, he has also chosen an economist, Martin Krause, a professor at the University of Buenos Aires and a trustee of the Mont Pelerin Society. Milei’s philosophical mentor is Alberto Benegas Lynch, Jr., whom most see as Argentina’s leading classical liberal.

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Milei, however, has a small team and will be obliged to go beyond his base. He has many enemies, from left-libertarians to the consultocracy. He is pro-life, pro-victims of crime, and anti-socialist; he wants to close the Central Bank, the sugar daddy of crony capitalists in banking worldwide. Milei is an existential threat to the alliance of government and part of the business sector. If he succeeds in closing the Central Bank, his impact would be well beyond Argentine borders.

Branding is essential for successful politics, and in this line Milei has chosen two main enemies. The first is the “cast,” the ruling class in alliance with governments of different stripes, which has controlled economic policy. The second is the Central Bank, which he proposes to close. They are not disconnected. Part of the cast, the financial consultants, have profited from their contacts and contracts with the Central Bank of Argentina.

The origins of this “diabolical” institution

During the 1930s, most Western countries started to implement interventionist economic policies. Germany had national socialists, the United States had the “New Deal,” British economists were devising all kinds of interventionist economic plans, and Italy had fascism. Perón adopted the latter, following the policies of the Labor Charter of 1927 – promulgated by Mussolini’s Grand Council of Fascism.

Some of these interventionist economic structures were already in place when Perón assumed power. He just made these structures serve his populist agenda. One was the Argentine Central Bank. Created in 1935 as a private corporation, the Bank had strict limits for government debt purchases, and the board included foreign bankers. In 1946, Peron applauded the nationalization of the Central Bank. He saw it as “an instrument of the international banking class, and its illegitimate, but servile child, the Argentine oligarchy.”

Perón started to use the Bank as an instrument to achieve political and economic control. Under Peronism, a significant portion of the Central Bank’s reserves was depleted. During the nine years of his rule (1946-1955), the Argentine peso fell from 4.05 to 18 pesos per U.S. dollar. Since then, Argentine central bankers, with few exceptions, have presided over the destruction of their currency. In the 21st century alone, the Argentine peso has gone from being at par with the dollar, 1 peso to 1 dollar, to today’s rate of 1,000 pesos to a dollar.

The military deposed Perón in 1955, but many of his policies continued. The “Liberating Revolution” leaders chose an interventionist, Raúl Prebisch (1901-1986), the first president of the Central Bank (1935-1943), as their economic minister. When Perón saw Prebisch’s economic plan, he chided those who had ousted him and claimed that they wanted to restore the classical liberal constitution of 1853. The new government intended to keep the Central Bank as an essential tool, a plan that Perón saw as pure hypocrisy. In his words: “The set of regimes, authorizations, and delegated faculties that make up the legal body of the Central Bank turns this institution into the all-embracing and uncontestable regulator of almost the entire economic life of the nation. Manipulating exchange rates, import and export permits, and foreign exchange, setting discount rates and policies and restricting or expanding credit from the comfortable inflexibility of bureaucratic decision making, fragmented in hundreds of forms, paperwork, signed declarations, one can increase or repress trade with any foreign nation, create, mandate or destroy any industry, help certain regions of the country or let them sink, capitalize or under-capitalize chosen activities, promote the building industry or repress it, encourage or discourage a branch of commerce, disseminate a certain crop or work for its extinction. In short, the legal structure of the Central Bank has attributes which openly contradict the constitution of a democratic nation and allow it to handle all its economic life.” Perón even labeled the Central Bank an institution of “an almost diabolical nature.” He correctly blamed Argentine conservatives, such as Federico Pinedo, a former socialist, and British technocrats, such as Sir Otto Niemeyer (1883-1971), for its creation. Those who wanted a top job in the administration that deposed him flaunted their collaboration with Prebisch “in the initial hours of the Central Bank” as their “the most significant achievement.”

A month ago, 170 Argentine economists signed a letter arguing against Milei’s plan to close the Central Bank and dollarize. It is no coincidence that this group includes former presidents of the Central Bank and many who profited from their privileged relationship with it. But Milei has his guns; a former president of the Central Bank, Roque Fernández, a “Chicago Boy,” is ready to collaborate with him. So is the “Pope” of the Chicago boys in Argentina, Carlos Rodríguez, whom Milei has announced will be his chief of economic advisers. He also has past and new blueprints for such plans; in 2001, former President Carlos Menem endorsed dollarization in an introduction to a book by economist Enrique Blasco Garma. Last year, banker Emilio Ocampo and Nicolás Cachanosky, a US-based Argentine economist, until recently a trustee of the Mont Pelerin Society, published a similar book, “Dollarization: a Solution for Argentina.”

Despite criticizing Milei, Bullrich’s economic team has already announced that it will push for free circulation and contracting in dollars. The challenges for putting Argentina on a sustained path to prosperity are immense, but sound money is a necessary first step. Milei has helped to change the narrative positively.

Source : Forbes