Chronicle - Sep 17, 2023

Right-Wings, Mileinomics, and Dollarization

Photo by engin akyurt on Unsplash

Something is brewing in Argentina. A new leader is on the rise, challenging the incumbent popular socialist administration. His election as president has the potential to reverse popular worldwide movements, from ESG to de-dollarization.

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Right Wings’ Small Steps

Right-wing politics is regaining traction, albeit slowly. People's votes are going to more conservative parties across Europe, the United States, and Latin America.

Right-wing parties are pushing their way into the mainstream in Western Europe. In the United States, Donald Trump remains the most popular presidential contender among Republicans. And the recent ascension of Vivek Ramaswamy, another Republican contender, demonstrates that right-wing ideologies continue to gain traction.

In the previous four years, socialist politicians in Latin America have gained the upper hand. Last year, Jair Bolsonaro was defeated by Lula da Silva in Brazil. Gustavo Petro was elected President of Colombia in 2022. In 2021, Gabriel Boric of Chile and Xiomara Castro of Honduras won. In the same year, Pedro Castillo was elected President of Peru. In Bolivia, Luis Arce was elected president in 2020.

However, the spectacular rise of Javier Milei, a libertarian economist and TV personality, has recently surprised Argentinians. He was labeled a far-right politician by the mainstream media.

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The Rise of Javier Milei

According to early September polls, Milei is the top choice of voters, ahead of ruling party economy leader Sergio Massa. According to these polls, the election is likely to be held in two rounds, the first in October and the second in November, with Milei facing off against Massa. To win outright in the first round, a candidate must receive 45% of the vote, or at least 40% with a 10-point advantage.

Milei is an outlier, both in terms of his hairdo and his remedies for Argentina's chronic inflation. His opponents criticized him for his close relationship with his sister and his plans to give away Argentina's sovereignty (we'll get to that later). However, his 30-minute interview with Tucker Carlson on X has received 322 million views in the first 15 hours. This is a remarkable achievement given Argentina's population of slightly more than 45 million people.

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Mileinomics

Milei's programs are eye-popping. He seeks total reform of the state, including the abolition of various government ministries, cabinet seats, and even the central bank, as well as the adoption of the US dollar as Argentina's currency.

He intends to eliminate the National Institute of Cinema and Audiovisual Arts, the Department of Education, and the National Institute Against Discrimination, Xenophobia, and Racism because they are thought to be indoctrination sources.

Some departments will be consolidated. For example, health, social development, labor, and education may all be merged under a single Ministry of Human Capital.

There are a lot more programs to reduce a big government into a smaller one. Milei aims to cut government spending by 15% of GDP and, ultimately, reduce taxes.

All of these ideas are controversial. Across the last decade, governments around the world have tightened their grip on their own people by raising taxes and boosting surveillance. It has become such a significant trend that it has become an investment theme! Milei seeks to protect Argentina against this trend.

Milei described himself as a climate change denier when it came to energy. His program, though, may be more pragmatic: "Incentivize investment in oil, gas, lithium, and renewables that generate genuine jobs and foreign currency inflows for the country."

But the most eye-popping one is his plan to adopt U.S. dollar as Argentina’s legal tender.

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Dollarization

Argentina suffers from chronic inflation. Following the hyperinflation of the 1980s, inflation rose above 100% once more in 2023. Over 82% of voters are concerned about inflation. It's no surprise that Argentina has two economists running for president (Javier Milei studied economics, and Sergio Massa is the country's economy minister).

Milei’s answer is to make Argentina the largest country to ever dollarize.

Dollarization will eliminate the government's ability to print money, shielding the people's purchasing power from government excesses. Furthermore, because it eliminates local currency concerns, foreign investors will have more confidence conducting business in the country. Another advantage is that by removing the capacity to print money, there is a natural incentive for fiscal discipline. The ruling class cannot implement short-term policies such as awarding loans or providing direct monetary aid without facing serious repercussions.

Dollarization critics are frequently concerned with the loss of sovereignty that occurs when a country cedes control of its monetary policy to the United States Federal Reserve. That is not exactly correct. The country still has various monetary policy options. It can, for example, raise or lower interest rates and determine the quantity of bond issuance.

People in Panama, Ecuador, and El Salvador have enjoyed relatively low inflation (compared to their LatAm neighbors) for decades because of dollarization. Of course, dollarization is not a guarantee of fiscal prudence. El Salvador is getting closer to China to obtain debt while increasing pension payments in anticipation of presidential elections in 2024.

Another advantage of dollarization is that people will return their foreign-held currencies. When dollarization was announced in early 2000, Ecuadorians expanded their dollar deposits by bringing back dollars previously stashed abroad or under mattresses. This behavior will alleviate concerns about Argentina's central bank's lack of USD reserves. The central bank lacks USD, while the private sector and citizens do not. They had more than $246 billion in overseas banks and jurisdictions, as well as more undeclared cash.

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Argentina: the Dark Horse

It remains to be seen if Milei will be able to win the presidency. Nowadays, socialism is highly popular. Even the United States, under Biden's leadership, is flirting with socialist policies.

It remains to be seen whether Milei's Argentina will be able to heal the chronic inflation disease. Milei's principal goal of dollarizing Argentina is difficult. Argentina will be the first significant country to adopt the US dollar as its official currency. 

The current ruling elite may vigorously oppose dollarization since they will lose their ability to engage in excessive spending. Argentina has also joined the broader BRICS group, which has pledged to abandon the US dollar. Argentina's two main trading partners are Brazil and China, with the United States ranking third. As a result, obtaining USD may be difficult.

However, if Milei's reform is successful, it may signal a reversal of numerous major tendencies. People will realize that smaller governments can be successful. People will realize that the dollar has not lost its luster. And the socialist concept of ESG may have peaked.

Two months ago, Javier Milei was unknown outside of Argentina. Last month, Argentinians were shocked when he received the most votes in the primary. Everything starts with an idea.

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IPO — Offering of non-US companies

Three companies going public last week are headquartered either in Macau, Singapore, or UK.

NWGL 0.00%↑ Nature Wood Group Ltd is a global leading vertically-integrated forestry company headquartered in Macau. For the years ended December 31, 2022, 2021 and 2020, the company generated revenue of approximately $55.3 million, $47.7 million and $37.5 million, respectively. Its operations cover both up-stream forest management and harvesting, and down-stream wood-processing and distribution. It offer sa broad line of products, including logs, decking, flooring, sawn timber, recycled charcoal, synthesized charcoal, machine-made charcoal and essential oils, primarily through our sales network in Europe, South Asia, South America, North America and China.

SPPL 0.00%↑ Simpple Ltd., a Singapore company, is an advanced technology solution provider in the emerging property-technology space, focused on helping facility owners and managers manage their facilities autonomously. Over the past five years, the company has developed a proprietary ecosystem solution that automates workflow and the workforce in areas such as building maintenance, security surveillance and janitorial services. The company received aggregate gross proceeds of S$8.4 million from the offering.

ARM 0.00%↑ Arm Holdings PLC architects, develops, and licenses high-performance, low-cost, and energy-efficient CPU products and related technology, on which many of the world’s leading semiconductor companies and OEMs rely to develop their products. Arm’s energy-efficient CPUs have enabled advanced computing in greater than 99% of the world’s smartphones, for the year ended December 31, 2022, and more than 250 billion chips, cumulatively, powering everything from the tiniest of sensors to the most powerful supercomputers.

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