San Francisco Frontiers - Milei takes office as Argentina braces for economic reforms

The 53-year-old libertarian economist has vowed there will be no "half-measures" as he tackles decades of overspending, debt, and convoluted currency controls in Latin America's third-biggest economy.

The inauguration ceremony in Buenos Aires is bringing together a diverse handful of world leaders, including Ukraine's Volodymyr Zelensky and Hungary's nationalist Prime Minister Viktor Orban -- the only EU leader who has maintained close ties to the Kremlin.

Chile's leftist leader Gabriel Boric and the King of Spain Felipe VI are also attending, as is Brazil's former president Jair Bolsonaro.

After taking the oath of office, Milei will give his first speech as president from the steps of parliament. He will later swear in a cabinet of nine ministers -- a major slimdown from the current 18.

He has said his first set of measures will be presented to parliament in a matter of days.

Milei's inauguration caps a meteoric rise for the former television panelist who entered politics only two years ago after grabbing public attention with his rants against the "thieving" establishment.

With his deliberately disheveled mop of hair and rock star persona, he would wave a powered-up chainsaw at political rallies, vowing to slash public spending and a bloated cabinet.

He vowed to "dynamite" the central bank, replace the ailing peso with the US dollar, and ditch key government ministries.

His red-faced fury struck a chord with voters fed up with economic crisis -- a phenomenon as Argentine as Malbec or the tango.

- 'Lights all flashing red' -

Inflation has hit almost 140 percent year-on-year and 40 percent of the population lives in poverty.

"Like many of his predecessors, Milei will take office with the warning lights all flashing red," said Benjamin Gedan, director of the Argentina Project at the Washington-based Wilson Center.

But for Argentines, the future is mired in uncertainty over what exactly their new president plans to do.

With few lawmakers in Congress the hard reality of politics has quickly set in, and Milei has softened many of his stances, and allied with politicians he previously insulted, incorporating some into his cabinet.

Talk of shutting the Central Bank, dollarization, and welfare cuts have dissipated.

"Milei 2.0 will still face an uphill climb, but he appears to have adopted a more pragmatic agenda and sought the advice of more experienced political figures," said Gedan.

However, with central bank reserves in the red and no credit line Milei is facing "bare cupboards," added the analyst.

"His rescue strategy, including a rapid downsizing of the government, will be tough to swallow for a long-suffering population. Either way, the next few months will almost certainly see social and political turmoil."

- 'Stagflation' -

Among the questions hanging over Argentines' heads in the coming days will be whether Milei will devaluate the strictly controlled peso and loosen the currency controls which have birthed a multitude of dollar exchanges.

Economist Victor Beker of the University of Belgrano said the first "litmus test" for Milei will be if he actually halts the money printing by the Central Bank that he has so derided, which funds much of the government's spending.

Milei has warned that it could take between 18 and 24 months to bring the country's inflation under control, warning of months of rising prices coupled with economic stagnation.

"There is going to be stagflation, because when you do a fiscal reordering, it will have a negative impact on economic activity," he added.

For 2023, the International Monetary Fund (IMF) has projected a contraction of 2.5 percent in Argentine GDP.

Milei has said his first priority was eliminating the budget deficit -- 2.4 percent of GDP at the end of 2022 -- by the end of next year.

Many Argentines are worried about what comes next.

"I think inflation will continue, perhaps worse than before. I see nothing good in the future," said Martina Soto, 66, ahead of the inauguration.

I.Wright--SFF