One Year On: Milei Defies Challenges to Early Success

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We welcome you to the Greater Caribbean Monitor (GCaM).

In this issue, you will find:

•One Year On: Milei Defies Challenges to Early Success

•The Green Pact Cannot Continue Impoverishing Central America

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•One Year On: Milei Defies Challenges to Early Success
647 words | 3 minutes reading time

Last Tuesday, Javier Milei reached the one-year mark as President of Argentina. Argentina’s economic prospects remain delicate, partly as a result of decades of mismanagement, but it is generally recognized that Milei has brought hyperinflation under control and set the foundations for the country’s economic recovery.

• Milei’s reforms have resulted in pain for the Argentine public, which had grown accustomed to a wide range of subsidies and free, or nearly free, public services. Milei nonetheless maintains that this pain is both fleeting and necessary.

• The country’s economy is expected to contract by 3.8% this year, as Milei has eliminated vast sums of public spending. Nonetheless, the IMF estimates that Argentina’s GDP will grow by more than 5% next year. The OECD expects a more modest 3.9%.

• Milei has also grown into a sort of heterodox international darling. This week, Italian Prime Minister Georgia Meloni granted him citizenship, and it is widely expected that he will develop a good working relationship with incoming U.S. President Donald Trump.
  
  

Overview. After the shock of his somewhat unexpected victory, Milei shocked the public once again with a key revelation: Argentina had “no money,” he said, meaning his “fiscal adjustment” would start immediately.

• When he entered office, monthly inflation stood at 25%, second only to Zimbabwe. This was high even for Argentine standards, as the defeated Peronist coalition had dedicated the state’s entire firepower to the presidential campaign. 

• Milei has since managed to stop the hemorrhage in the peso’s purchasing power, stabilizing monthly inflation at 2.7% in just 10 months. 
  
  

Regional Echoes. As with Nayib Bukele’s performance in El Salvador, Milei’s reforms have not gone unnoticed across Latin America. Last Monday, UFM Reform Watch, attached to Guatemala’s Francisco Marroquín University, held a conference on Milei’s achievements and extant challenges. 

• The event, moderated by Professor Olav Dirkmaat, joined the likes of Juan Ramón Rallo, Ricardo Rojas, and Daniel Fernández.

• As the most important points on the road to the economic miracle, they highlighted having achieved a budget surplus and closing the exchange gap between the official dollar and the black-market “blue” dollar. This was achieved in spite of strong opposition in Congress. 

• The conference concluded that in general terms, Milei can boast a positive balance. His greatest challenge remains retaining support in time for Argentina’s October 2025 midterms. Without this, he risks being politically neutered. 
  
  

Seen and Unseen. Professor Fernández pointed out that while it is true that the effects of the adjustment generated an increase in the poverty rate during Milei’s first six months in office, the reforms have resulted in a rapid recovery. 

• According to him, drastic reductions in public spending always generate a short-term recessionary effect; in Argentina’s case, however, austerity was the only avenue.

• Although Milei had earlier promised dollarization as a way to solve the Argentine Central Bank’s lack of fiscal probity, his reforms have strengthened the Argentine peso, making its abolition less appealing.

• Milei has managed to reduce the gap between the official and “blue” dollar by 92%. This is essential to his medium-term goal of abolishing Argentina’s capital controls. 
  
  

Yes, But. Despite the government’s progress, the Central Bank may return to its inflationary vices in the future. This continues to be one of the great challenges of Milei’s government. For his second year, Milei is considering allowing the legal circulation of the dollar, making it compete against the peso domestically.

• Milei also faces strong opposition from Peronism in Congress. The “Ley Bases,” his main reform of the state, took almost seven months to be approved and lost almost two-thirds of its articles along the way.

• In addition, he faces a reduction in the size of the Supreme Court to only three justices from the current five, so he will need to appoint at least two sympathetic magistrates to the nation’s highest court.

• Finally, the president will face legislative and provincial elections in 2025. He will need to expand his presence in the provinces to prevent the provincial opposition from counteracting his federal-level budget cuts.

•The Green Pact Cannot Continue Impoverishing Central America
600 words | 4 minutes reading time

As reported by República, the right-wing majority in the European Parliament has moved the European Union away from the European Green Deal. As the continent moves away from its draconian environmental measures, industrializing countries remain uncertain about how to develop under a global regulatory framework that limits their capacity for growth. Indeed, for countries like Guatemala, development requires an increase, and not a reduction, in greenhouse gas emissions. 

• Guatemala contributes only 0.08%—as of 2021—of the world’s GHG emissions, while it continues to rely on industrialization, agricultural expansion, and urbanization to overcome most of its challenges.

• However, the EU and organizations like the Inter-American Development Bank (IDB) continue to demand compliance with environmental goals based on the standards of developed countries.
  
  

Why It Matters. The European Green Deal seeks to make Europe the first net-zero continent by 2050. The issue of sustainability has long been a priority for the EU. As such, Green Deal principles form important pillars of its trade agreements with the rest of the world, including Central America. Even though the EU-Central America Association Agreement (AoA) was approved in 2012, the EU has used targets within and outside the agreement to push forward its Green Deal goals in Central America.

• The EU has used the Sustainable Development chapter of the AoA to drive discussions on energy transition and decarbonization.

• Even though the provisions are not included in the agreement, it has also emphasised meeting the commitments of the Paris Agreement as an obligation for all its trade partners.

• Additionally, in 2024, the EU Deforestation-Free Products Regulation came into effect, which establishes strict requirements to ensure that products imported into the EU are not linked to deforestation. Right-leaning members of the European Parliament nonetheless ensured the regulation’s postponement until at least late 2025.
  
  

Between the Lines. Since 2023, the IDB has been working towards a strategy to allow Guatemala to mimic the EU and become net-zero by 2050. The plan involves annual GDP growth of 3.2%, far too low too for a developing country; the total elimination of fossil fuels; reconverting corn, bean, coffee, banana, cardamom, palm, and sugar cane crops into forest land; replacing 75% of vehicles with electric cars; limiting the production of high-resistance construction materials; and reducing water consumption by 40% for industry and 20% for residences and businesses.

• All of these objectives limit the country’s development capacity, reducing Guatemala’s ability to tackle poverty and malnutrition, attain energy security, or increase the citizenry’s access to housing.
  
  

Yes, But. Fossil fuels allowed the country to avoid a power shortage in 2024. Moreover, the conversion of agricultural land into forest land would put food security at risk, a remarkable undertaking for a country where UNICEF statistics show 50% of children are chronically malnourished.

• Avoiding deforestation for other uses also prevents solving the need for housing. This is nearly impossible in a country that despite slowing birth rates, continues to have a growing population.

• High-resistance construction materials are a fundamental necessity for a country like Guatemala, which suffers irreparable damage to roads, critical infrastructure, and housing every winter.
  
  

Conclusion. European Green Deal goals are unfeasible even in developed countries. Europe has understood this, especially considering the issues its policies have generated in the energy sector. To further their own development, Guatemala and Central America must industrialize, which involves raising emissions.

• While the EU realizes its mistakes, its strategy must be adapted to promote industrialization in developing countries. Conveniently, this would also serve to foster growth at home and reduce immigration pressures. 

• From its own perspective, Central America cannot foot the bill for what remains a developed country concern, especially considering it still suffers from child malnutrition and contributes very little to GHG emissions.