To investors,
The President of Argentina, Javier Milei, is running one of the largest economic experiments in history. He assumed power with the country experiencing 300%+ inflation and a population that was quickly losing hope that the future could see improvement.
Milei won the Presidency by promising radical reform that would unleash free market capitalism and bring economic prosperity back to the country. While many people liked his ideas (enough to elect him!), very few thought he could have such a large impact in a short-period of time.
Argentina has seen inflation fall to 11% monthly, the Argentinian peso was the best performing currency in Q1, and the country ran a budget surplus in the first 90 days of the year for the first time since 2008. These are major milestones for a country and economy that was previously run by top-down bureaucrats who wanted to paternalistically oversee every aspect of the economy.
Matthew Lynn has a great piece in The Telegraph titled “Milei is already proving the Left-wing economic establishment wrong.” In the article, Lynn explains why Milei is having so much success already:
“First, even without a majority in parliament, he has been ruthless. Whole government departments have been closed down overnight, regardless of the immediate consequences. The Ministry of Culture was axed, so was the anti-discrimination agency, and the state-owned news service. Only last month, he unveiled plans to fire another 70,000 state employees.
Milei hasn’t attempted to cut gradually, to control budgets, or to ease people out with early retirement, or hiring freezes. Instead, he has, as promised, taken a ‘chainsaw’ to the machinery of the state, yielding huge savings in the process.
Next, he has been bold. The president massively devalued the peso on day one, taking the financial hit upfront, and then tore up rent controls, price restrictions and state subsidies. He pared back workers’ rights, reducing maternity leave and severance compensation, and allowed companies to fire workers who went on strike.
He ripped away fuel subsidies, even though it meant a temporary spike in inflation. Sure, there has been some short-term pain, but the results are now becoming evident.
Rents, for example, are falling by 20pc a year as landlords, freed from controls, put more supply on the market, instead of withdrawing it as they do in countries where the price is set by the government.
Finally, Milei has never stopped making the argument. He promotes freedom, liberalisation and a smaller state with a messianic zeal.
Many of the measures he has taken might be rough, but the president has never attempted to dismiss that, instead explaining patiently and persistently why the reforms are justified, and how they will create greater prosperity for everyone in the long run.”
This type of bold, ruthless approach to changing the economic situation in a country is commendable. It is not only difficult to implement, but it guarantees you won’t make many friends.
Americans have historically viewed Argentina as a country that lost control of their economy. We couldn’t imagine a scenario where the leader of the West followed in Argentina’s footsteps. That may be true today, but we are cooking with a number of the same ingredients that our South American counterpart was previously.
America has out of control spending. The national debt is ballooning. Our government has become a bloated bureaucratic machine that continues to hire needlessly. The central bank has created an inflation fire and is now struggling to put it back out. The average family is losing hope that they can ever achieve financial security. And the American Dream is at risk as we watch the middle class disappear.
We need bold leadership to get us back on track. We need to significantly cut spending. The entitlement programs will need to be changed. We’ll have to reduce the number of employees employed by the government. Free markets will have to reign. Politicians and regulators will need to understand their important role in encouraging innovation. And GDP will have to accelerate.
None of this is easy. The odds are stacked against us. But we are facing a fork-in-the-road. Continue on our path and risk becoming the Argentina from the last decade. Or return to our roots of capitalism and free markets so we can beat Argentina to the punch and continue to be the greatest economic machine ever created.
Hope you all have a great day. I’ll talk to everyone tomorrow.
-Anthony Pompliano
Jihan Bowes-Little is the Co-Founder & Managing Partner at Bracket Capital, an investment firm focused on special situation opportunities in growth / late-stage private companies.
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