Milei's Shock Therapy

Translation of an explainer by Horacio Rovelli

Going to to keep my comments at the top of this one extremely brief. Miroslav and I recently discussed the extreme liberalization measures implemented by Javier Milei in the early weeks of his presidency on the inaugural episode of our podcast, Regime Radio. This article provides (I hope) a useful supplement to our breakdown of recent events and covers some of the finer points we may have missed. It was originally published 17 December 2023 by Horacio Rovelli on El Cohete A La Luna (Rocket to the Moon), a web portal managed by legendary Argentine left-wing journalist Horacio Verbitsky, and can be found here.

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Inconsistent and Improvised

A plan to privatize public assets and unload the debt onto the backs of the people

After a week of [the Milei] government, it is clear an overall plan does not exist and that factions with contradictions and distinct interests continue to exist, though all seeking to enact policies favoring international finance capital and monopolistic corporations. Both of the latter groups are the principal beneficiaries of the purchase of cheap dollars through a debt exceeding $100 billion, which dates to the government of Cambiemos* and which Frente de Todos** did not investigate.***

A violent adjustment plan is being executed against the consumption of the population, in order to prioritize the sale of food and fuel to other countries, whose ultimate goal is to privatize the largest national assets in order to pay off an external debt by sacrificing those who did not benefit from it.

One of the architects of external indebtedness under the government of Cambiemos, today Javier Milei’s Minister of Economy, feigns ignorance of just who naively voted for Milei and affirms that thanks to his subpar speech, which was read and broadcasted on Tuesday 12 December, this group understands the necessity of economic adjustment and to devalue our currency, while he has millions of dollars overseas and serves the major financial groups who have a presence in the country.

That the price of a liter of fuel oil passed 780 pesos**** and that of gasoline 600 pesos on 15 December, when they were respectively 292 pesos and 272 pesos just a month ago; that the price of a kilo of novillo***** in the Mercado de Hacienda de Cañuelas****** now costs 1,545 pesos where it was 870 on 16 November (a 77.6% increase), with a direct effect on the price of a kilo of beef at the counter; or that in Gran Buenos Aires a kilo of bread that on 16 November cost 1,100 pesos now costs 1,800, represent the early symptoms a devaluation of 100%, which has taken the price of the dollar from 400 pesos on Thursday 7 December (the final day of the mandate of Frente de Todos) to 838.18 pesos by Friday 15 December.

The generalized rise in prices is attributable to the super-profits of major producers and marketers, that set them at levels equivalent to the value of the dollar, and thus, continue their bull run, because what cannot be sold on the internal market is exported, and, if that does not happen production is stopped. It is no problem to them if, as a result of that policy, workers are thrown out on the street.

International Finance Capital

The first group of beneficiaries from the Milei government consists of finance capital headed by BlackRock, which administers the Argentine economy through the selection as Minister of Luis “Toto” Caputo, former head of the Latin America desks at JPMorgan (a bank in which the largest shareholders are BlackRock and Vanguard) and Deutsche Bank. Caputo, when he last was a public official, did not declare to the Anticorruption Office his participation in offshore companies, as was demonstrated by the “Paradise Papers” [1]. In his appearance before Congress in 2018, to provide an explanation to the Bicameral Commission for Monitoring and Control of Contracts and Debt Payment, Caputo tried to justify his relationship with an offshore structure which connects him to the asset manager Noctua and the Axis consultancy, of which he appears to be the “founder,” meaning that he was the “indirect owner” and an “indirect shareholder,” as well as a shareholder in another company located in the Caiman Islands. Following the revelation Caputo was accused of multiple crimes, among them malicious withholding of information, dealings incompatible with the exercise of public office, influence peddling, use of privileged information, dereliction of duty as a public official and asset-laundering.

The President of the Central Bank, Santiago Bausili, was always second-in-command to Luis Caputo, from JPMorgan to Deutsche Bank, to the Macri government. Bausili was indicted for business dealings incompatible with the exercise of public office for participating in the contracting of Deutsche Bank as intermediary in the allocation of public debt, even though he had worked for that banking entity up until two days before assuming state office and had shares in it up to September 2018, as part of his retirement benefits. Furthermore, being a public official (subsecretary of Finance from 11 December 2015 and later Secretary, replacing Caputo when the latter became President of the BCRA), Bausili violated ethics rules because he should have abstained from involvement in any matters relating to Deutsche Bank for at least three years, according to the late prosecutor Federico Delgado. The judge in the case, Sebastián Casanello, ruled that “it is absolutely clear that Bausili could not intervene in any matter related to his former employer until September 2021,” and finished by affirming that: “In other words, all actions taken by the defendant in that period are found to be prohibited by law.” The Argentine judiciary through judges Martín Irurzun y Eduardo Farah overturned the prosecution of Bausili, who was defended by the lawyer Matías Cúneo Libarona, brother and partner in the firm of Mariano Cúneo Libarona, Milei’s Justice Minister.

International finance capital’s third man in the Ministry of Economy is Joaquín Cottani, who had been subsecretary of Financing during the tenure of Domingo Cavallo.******* Cottani worked at Lehman Brothers, Citibank, the World Bank and was Latin America head for S&P Global Ratings. And the BCRA vice-president is Vladimir Werning, who worked for many years at JPMorgan and was Minister of Economy in the parallel cabinet which Mario Quintana directed as chief advisor to Mauricio Macri.

These four men will need to move from Manhattan, New York, where they live, to Argentina, in order to be the principal officials in charge of the national economy.

Grupo América

In terms of employees or ex-employees of the Eurnekián Group******** we have Nicolás Posse, cabinet head for the new government. He is director of projects at Argentine Airports 2000 and was Milei’s immediate boss at the project called Aconcagua Bio-Oceanic Corridor, which consisted of a hi-tech train that would have connected the Atlantic and the Pacific through a 52km low-altitude tunnel crossing the Andes.

Guillermo Francos, designated as Minister of Interior, was in charge of various directorial functions and the Eurnekián Group and was even director of Argentine Airports 2000. Francos was Argentine representative to the Inter-American Development Bank (IADB), a position to which he was named by President Alberto Fernández at the beginning of his mandate, in 2019, and which Francos renounced in September of this year in order to join the Milei campaign.

Mariano Cúneo Libarona, Minister of Justice, has been a lawyer for the Eurnekián family for the past 30 years and defended the head of the conglomerate in the so-called “notebooks case” (which investigated the payment of bribes in exchange for public contracts). In 2022 he succeeded in getting federal judge Julián Ercolini to dismiss the case against Eduardo Eurnekián and other major major businessmen.

Guillermo Ferraro, Minister of Infrastructure, was for 13 years director of the Argentine affiliate of the Anglo-American auditor KPMG and so was involved in the firm Vicentin SAIC.********* The prosecutor for the Rosario Economic Crimes Unit, Miguel Moreno, raided the offices of KPMG in 2022 after concluding that it played a crucial role in making effective the scheme of Vincentin to display “fraudulent accounting and financial statements.” Ferraro, working for KPMG, designed the Eurnekián Group’s strategy in its bid to construct the Aconcagua Bio-Oceanic Corridor and the Chihuidos Hydroelectic Center. Both projects have been stalled for a decade for lack of international finance. It is this which is the driving factor behind the system of public-private partnerships in public works.

Lastly, the ineffable Rodolfo Barra, picked by Milei as legal counsel to the National Treasury, was in 1989 designated vice-minister of Public Works (the Minister was Roberto Dromi and the subsecretary for Reform and Modernization was Armando Guibert, creators of Law 23.696 on Reform of the State). On 18 December of that year, after having initiated the process of privatization for most Argentine public enterprises, Barra was named Secretary of the Interior. In both positions he promoted the legal principle of “guaranteed renumeration for the private co-contractor,” a norm which diminished to minimal levels the business risk for firms which contracted on public works, and which was blamed for multiple, high-profile cases of self-enrichment by state contractors [2].

In 1996, Barra was designated President of the Directorate of the National Regulatory System for Airports (ORSNA), and in 1998 (under his Presidency) privatization of airports was carried out, through a tender which made it possible for the group headed by Eurnekián to purchase 33 airports across the country for a period of 30 years (1998/2028) through the enterprise Argentine Airports 2000 S.A.

The report of the General Auditor of the Nation found serious irregularities, both in the fulfillment of the planned commitments by the enterprise contracted and the organism which controlled it (ORSNA). AA2000, which won the concession due to having offered to pay a fee of $171 million in two annual installments, never made a full payment. For June 2001 its debt on the fee alone was $104 million.

Eduardo Duhalde reduced the annual fee from $171 million to $80 million. Nestor Kirchner renegotiated the contracts which stipulated 20% state ownership of AA2000, so that Eurnekián was left with 51% and the remaining 29% was listed on the Buenos Aires Stock Exchange.

In 2009, Eurnekián went a step further. He was left with 100% of the tax deposits for the airports in Ezeiza, Aeroparque, Córdoba, Mendoza and Mar del Plata. The enterprise Argentine Airports 2000 absorbed Edcadassa (South Atlantic Air Cargo Company SA), which in the ‘90s Cavallo had flagged as property of Alfredo Yabrán.

In August 2020, during the COVID-19 pandemic, a conference at the Casa Rosada chaired by Alberto Fernández with Eduardo Eurnekián, President of the Americas Corporation, Martín Eurnekián, Executive Director of AA2000, and Daniel Ketchibachian, company CEO, agreed to prolong the concession until 2038. Eight years before the contract was due to run out it was extended for another decade.

Synthesis

If the Argentine judiciary was independent, Milei’s top appointees to the Ministry of Economy could not receive their positions through conniving with power. In the case of international finance capital, it has been decided to indebt the country in order to rescue deposits held in short-term financial instruments (Pases Pasivos, Leliq and Notaliq) [3], which as a 11 December add up to 22.6 billion pesos (which at the official exchange rate of 400 pesos represent around $56 million and thanks to the devaluation come to represent less than half that). At the same time, they propose a strong devaluation in order to liquidate that debt in pesos, and in general to cheapen all assets held in pesos, in order to grab them up at bargain-basement prices. This effect is maximized when the state collects in pesos and, because of devaluation, purchasing dollars in order to pay interest and the mature principal (from the second half of 2024 onwards) of the August 2020 renegotiation of private debt spearheaded by Martín Guzmán becomes more expensive. When the state is unable to pay the creditors are going to demand public enterprises and other major national assets.

And when it comes the Eurnekián Group, the officials discussed here should recuse themselves for at least three years from any future tenders and/or public-private partnerships, for the same reasons that the prosecutor Federico Delgado stated in the Bausili, basing his argument on the Law of Public Ethics.

[1] The Paradise Papers are a collection of 13.4 million documents related to investments in tax havens, which were made public on 5 November of 2017. They contain the names of more than 120,000 people and companies, and were obtained by the German newspaper Süddeutsche Zeitung, which had previously first obtained the Panama Papers in 2016. Süddeutsche Zeitung turned over this information to the International Consortium of Investigative Journalists (ICIJ), which has been investigating the documents.

[2] Robo para la corona; los frutos prohibidos del árbol de la corrupción. Horacio Verbitsky, Planeta, 1991.

[3] Among other reasons, because BlackRock has a major stake in the banks Santander, BBVa, Galicia, Macro, and HSBC.

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* Governing coalition of Mauricio Macri (right-wing).

** Governing coalition of Alberto Fernández (center-left).

***Various Macri functionaries are the subject of ongoing criminal investigations into alleged corruption during the negotiation of the IMF loan, which are collectively known as FMIgate.

****The currency symbol for the Argentine peso bears a strong resemblance to that used for the USD, so I have transliterated the full name of the currency throughout this article in order to avoid confusion.

*****Meat from a young steer or bullock.

******(Agricultural) commodity exchange located in Buenos Aires.

*******Minister of Economy under the neoliberal Menem government, infamous.

********Conglomerate owned by 91 year-old Amernian-Argentine businessman Eduardo Eurnekián, the fourth-richest person in Latin America. Eurnekián employed Milei in the private sector for many years and is his largest campaign donor.

*********Argentine soybean processor, one of the largest agricultural companies in the country and the world.