Is the pendulum swinging again?Argentina's situation at a glance

In the 20th century, Argentina began with promising economic prospects, comparable to Canada and Sweden, representing two-thirds of the per capita economy of the United States. However, the election of Juan Perón in 1946 marked a significant shift. His presidency sought social justice through economic redistribution, resulting in rapid expansion of the government sector, excessive spending, money printing, and uncontrolled inflation (over 300%), leading to a drastic decline in living standards.

In the 1990s, Argentina implemented a currency board system, pegging each Argentine peso to the U.S. dollar, following the gold standard model. This strategy reduced inflation to U.S. levels and spurred a decade of solid economic growth. However, it collapsed in 2001-02 due to sustained government spending and borrowing when new money couldn't be printed. Investors anticipated the abandonment of convertibility during the economic crises, which occurred and depreciated the value of the peso

As a consequence, Argentina experienced another lost decade of growth and hyperinflation, with per capita GDP standing at less than 20% of U.S. levels and below Russia. However, a recent political transformation occurred with the landslide victory of Javier Milei, a libertarian economist and staunch critic of socialism, in the presidential elections. His advocacy for free-market capitalism suggests a potential shift in Argentina's economic direction.

Milei advocates for completely abandoning the Argentine peso and the central bank, adopting the U.S. dollar exclusively to instill confidence and prevent devaluations. Despite his popularity, his lack of affiliation with a widely supported political party in the legislative branch presents challenges for realizing his agenda, making the extent of Milei's impact uncertain. Recent global political trends indicate a shift towards leaders advocating significant changes and growing dissatisfaction with large governments. The global pendulum seems to be swinging towards smaller government, potentially giving investors cause for optimism and raising the possibility of another transformative era in global economic growth.

SOURCE: First Trust Advisors L. P

November 27, 2023