there are very few world leaders that have a less enviable job than the new president of Argentina a country that was once one of the most prosperous economies on the planet but has since fallen into Decades of Crisis after crisis last year a radical new government was elected led by this chainsaw wielding gentleman Harvey MLA who ran on possibly the most depressing political campaign message ever Argentina after Decades of economic mismanagement was no longer a wealthy country so if it was ever going to heal it needed to stop acting like one and live within its
means the country was basically relying on a credit card to maintain a standard of living for its people which it simply couldn't afford with its outdated and inefficient Industries the solution meant major cuts to government programs subsidies and benefits while increasing taxes and privatizing a lot of government utilities the result would be a significant and instantaneous hit to quality of life for almost everybody in the country but even despite that not particularly appealing political pitch it was remarkably popular because the Hope was that it was a bit of medicine that the country needed to finally
clear out generations of economic and rebuild from the ground up so instead of the usual round of questions for this we only really need to answer one a year on from these radical changes is it working if you ever tried creating a high quality video you know it takes a lot of effort from scripting and editing to finding the right visuals but with today's sponsor nid AI things are about to get a whole lot easier and more exciting nid AI just announced V3 and it's going to bring your imagination to reality better than any tool
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policy in 1930 to the self-sufficient recovery projects using pre-existing Industries Argentina has been on an economic roller coaster the likes of which most countries have never experienced let alone been able to recover from and Y it has five times and it very well might be able to experience at sixth even though it has made these comebacks in terms of Topline economic output every economic collapse is only further tarnish its reputation as an economy that is simply doomed to Chronic instability in fact each so-called recovery has left it more and more vulnerable to economic hardship which
has to do with how government leaders keep their Promises to the public this was covered in depth in our last video in Argentina so put simply embracing the policy of developmentalism each election period was followed with efforts to modernize by taking on massive amounts of debt with no clear C plan as to how this would eventually be resolved Beyond hiding it under the proverbial rug even more simply it was an economy that had lost its Competitive Edge in the global economy and instead of accepting that it's attempted to look like a developed economy by borrowing
money and protecting advanced yet inefficient local Industries this scared away foreign investment and businesses made exports very uncompetitive and devalued the local currency over and over again to the point where it's actually had six different currencies over just the last 50 years it had become such a problem for the average citizen that many started using US currency for daily purchases which prompted the national government to limit transfers along with taking out larger and larger controversial loans most notably from the IMF latus been a $7.5 billion package to prevent future decline now this has largely been
the product of the country becoming accustomed to a particular standard of living where elections were won almost solely by making promises to those with the most to lose that they would be able to maintain their present lifestyle however the consequences of poor fiscal discipline have recently become far too great to ignore and the latest revolutionary presidential election has argued that maybe the people will choose a radical course towards cost cutting over the old strategy of living off debt that has so far not been going great for them much of the mainstream depiction of laay has
been born out of his admittedly strange behavior on the campaign Trail and opinions of the figure fall into one of two categories the first Camp has argued that he's an unhinged radical one who has been compared to a number of other modern leaders in the west that is too cartoonish to be taken seriously a second feels that he's a necessary solvent for Argentina's blow to bureaucratic overreach that has caused far more harm than good over the last 80 years of ups and downs regardless the assumption that he isn't serious or that he isn't at the
very least well versed on economic issues can be dispelled when looking at his career path for two decades Malay taught economics at a university level writing dozens of papers on the subject by 2016 his methods during his rise to prominent starting around 2010 were flamboyant aggressive and often involved direct insults towards whoever he saw as opposition Malay was constantly pointing out the growing amount of cases where Argentina was spending Beyond its means on various radio programs and these findings were to be Fair objectively problematic for Argentina the government now has a reputation for spending massive
amounts on bloated programs giving salaries that were so generous that it sometimes couldn't even afford to pay its workers at one point an ex Argentine president admitted outright that we don't have the money so we can't pay the payment depends on tax Collections and as everyone knows we're having difficulties with revenues it's not exactly the kind of statement that puts the public at ease and a lot of that had to do with insane subsidies most notably energy amounting to 3.5% of the country's GDP in 2014 by 2022 these subsidies alone cost the state budget approximately
$12 billion for the government this meant spending more pesos and printing more pesos which caused private Industries to try and carry the productive load while simultaneously crippling them to the point that they could no longer compete if the government is giving away a service practically for free it's very hard for a private business to develop in that industry when they have to turn a profit to survive all of this created an incredibly bizarre case of brain drain where citizens who would normally excel in the private sector had no other choice but to choose a government
job for consistently unstable incentives well that or in the tech world work online internationally while harboring US dollars in secret in other words Argentina hasn't necessarily been losing its people but they had been losing the allegiance of its labor force causing the economy to basically bleed internally and because of this very few outside entities are even willing to resolve it as motivations for doing so remain unclear the constant debt cycles and hyperinflation made the country an extremely risky place to invest so private Enterprise found it very hard to establish there because nobody wants to set
up business in a country that goes bankrupt through L and this is where the people started taking Harvey ml's message a little more seriously one that was originally too hard to swallow again basing their living stand on past periods of prosperity Argentina felt the full force of democracy's double-edged Sword every time a candidate came in with words promoting consistency many voters turn a blind eye to how much this would cost constantly chasing their historic high from 100 years ago when they were rivaling Global superpowers but after nine bankruptcies raising public unrest and inflation rate orbiting
around 200% it finally looked like they were ready to hear the harsh truth and that's how found his way into the highest office in Argentina with really one simple message this is going to hurt so here's how it's going literally the first thing Malay did after coming into office was to gut the government from bow to Stone on the first day a decree was signed to reduce the number of federal Industries with 18 cabinet officers been absorbed by nine departments duties held by the Ministry of Transport and Public Works were transferred to the ministry of
infrastructure things like tourism Sports and environmental policy were transferred to the ministry of interior and the idea was that if the fat was cut in some government arm became privatized this would be a good first step towards Reviving competition that deterred growth in recent decades again to be fair this is working M's extreme austerity measures have cut down a lot of these programs and by the headline figures some things are going right most notably they brought in more tax revenue than they spent this year inflation is also down which is huge considering where the country
was now that's great but perhaps the most interesting and controversial move that Malay has been encouraging though as of late is dollarization where the Argentine peso would be phased out and replaced with the US dollar as the medium of exchange now this isn't unheard of of course many countries in the EU use the euro a currency that they don't directly control and there are also dozens of smaller economies around the world that use the US dollar because managing and maintaining their own domestic currency just wouldn't be worth it compared to the ease and Global recognition
of the US dollar so it's not like Malay is pulling this out of a hat but unlike Euro countries that still do have some shared say and the countries that are already using other foreign currencies if Argentina can pull this off it would be by far the largest economy in the world to embrace ization so unsurprisingly a lot of people are watching this process very closely several prominent economists in the US like Steve hanky and John Cochran have been longtime proponents of dollarization MLA openly admits that theorists like muray rothbard friedrick kayak Milton Freeman and
Gary Becker have inspired some of his latest decisions dollarization is an aggressive move for any country to make because of the control that it gives up to set its own monetary policy if for example the US is thriving and inflation is high the Central Bank might increase its Target rate which would be filled in Argentina even if its economy is faltering and would benefit from lower interest rates but it seems that handing off control is the very thing that Harvey MLA finds so attractive it's the macroeconomic equivalent of handing the keys over to a responsible
adult at the beginning of a big night the Argentine Central Bank has already tried some of the most extreme forms of Peg currency agreements and when they did they were incapable of maintaining sufficient reserves allowing for unlimited convertibility or committing to a fixed rate of exchange to Malay and the economists that promote this movement this is why Argentina might Fair better by going Allin without the financial parachutes in Wake of the crisis the government would theoretically have to be more cautious about where it spends its money Argentina couldn't print its way out of a jam
which it's done plenty of times in the past and although growth would occasionally stagnate or be much slower than what they've experienced in the past the country's inflation rate would finally be manageable encouraging foreign investment allowed the nation to modernize in the past and allowing foreign investors to invest in US Dollars makes the whole Prospect of doing business in Argentina a lot safer and more attractive so it's undoubtedly a risky play but if there is any country in the world that would benefit from tearing things down and starting again it would be Argentina but even
if this was guaranteed to work there's another more immediate problem to fully dollarize the economy Argentina needs dollars which it doesn't have because a lot of its foreign reserves have typically gone to paying off debts now the good news is that the country's Trade Surplus has been growing over the last year so it has a source of foreign income but to properly make the switch away from the peso the first step has to be to stabilize the peso to begin with M's methods cutting subsidies cutting taxes for foreign investment and mass privatization have led to
the first science of consistent fiscal Surplus in years the Deep Cuts slashing and selective deregulation have allowed the nation to slowly heal however there's a reason Malay said bite down this is going to hurt Public Utilities like gas water and electricity have skyrocketed along with basic necessities like food and public transport while tens of thousands of people are losing their jobs from lack of government support or directly from executive efforts to curb their deficit for the armchair Economist it's easy to point to the numbers and tell people that this shock treatment is making a positive
difference but to the average person who is seeing a considerable drop in their support systems it's extremely hard to celebrate what onlookers see on a chart it might be easy to explain to the people that a deepening recession is necessary to fix the bloat and mismanagement but it's hard to maintain public approval when people are spending months barely scraping by this matters because if Malay is kicked out of office too soon then all of this would essentially be for nothing in the past year Argentina has seen a significant rise in protests with those in the
opposition claiming that these signs of recovery are superficial at best major institutions have been shut down or damaged by Marchers and putting on the proverbial shoes the response to these changes might seem reasonable even necessary popular arguments point to Argentina's initial drop in GDP but with government spending being one of the major contributors to the metric that kind of explains itself on the flip side it doesn't seem like retaliation for these changes has risen significantly in recent months or at least not remain consistent polls and Argentina seem to indicate that many are getting the message
things have to get worse first before they get better one of the biggest pillars of mala's plan is getting back competitive industry which will take time because nobody wants to set up a company until they've seen this plan at least providing some stability first and even then businesses take a while to get going what Argentina really needs is time radical Solutions probably are what is needed for a country with such radical problems the issue in the past is giving a plan long enough to play out before deciding the opposing gu solution sounds better and reversing
course it's also worth mentioning that Argentina shock treatment isn't some kind of magical treatment that can be applied to any struggling economy Malay policies and general style of governance wouldn't do well in an economy that's running smoothly where it's more about small gentle corrections to keep everything in check but for now the country has seen an uncomfortable Improvement the only question is whether this discomfort will be too much for the general public to Bear now this was a follow-up to the full country video we posted last year so if you're interested in a more detailed
breakdown of exactly what Malay inherited you should be able to click to that video on your screen now thanks for watching mate bye
