Blain’s Morning Porridge Sept 23^rd 2025 – Washington looks after its own, bailing out Argentina.

“Democracy is absolutely the worst form of government, except for any of the alternatives.”

Argentina’s financial crises are legendary – a 10th default is now in prospect. President Milei’s efforts to turn the nation around through austerity, government cuts, and economic shock therapy made him a poster boy for the Libertarian Project 2025. Surprisingly, they appeared to be working, till suddenly they aren’t. Now the USA looks set to bail out the nation.

History never repeats, but it does resonate. Democracy is a pesky concept…

Argentine President Javier Milei has been the darling of the Right-Wing and Libertarians ever since he took office in December 2023. His programme to stabilise and rescue Argentina was straight out of Hayek 101 through crushing economic austerity – a focus on cutting inflation by slashing government spending dramatically and deregulating the economy. State bureaucracy was the primary target – hundreds of thousands of workers lost their jobs, the number of ministries were slashed, currency controls and export/import rules were abandoned, rent controls unravelled, and deficits significantly reduced.

Much to the surprise of the economic commentariat – Milei’s Libertarian philosophy  appeared to be working. It was tough economic medicine, but inflation fell, and the nation seemed back on course for growth.

And then suddenly it juddered. Voters lashed out, the market lost confidence, and yesterday Milei found himself a supplicant at the Court of King Donald in Washington begging a bailout from Treasury Secretary Bessent and his Project 2025 chums.

What went wrong….?

Argentina, the Land of Silver, should be one of the richest nations on Earth. It once was – in the early 20^th Century it was a G10 economy, with wages in line with Europe, rich on resources, a thriving agricultural sector (Fray Bentos pies were a staple in the UK when I was young..), attracting Welsh miners to its rich mineral seams (which is why they speak Welsh in Patagonia!). It was described as a “super-exporter” into what was then a relatively open global trading economy.

But it all went terribly wrong after the great global depression of the 1930s (triggered in no-small part by American protectionism), and the nation fell into right-wing autocracy  after a coup, then the quasi-democracy of General Juan Peron (best described as autocratic socialism), pursuing policies we now recognise as Populism 101.

The long-term result was the increasing bureaucratisation of the state, political instability, stagnation, rising corruption, a growing black economy to avoid taxes, leading to a succession of economic crises, defaults and hyperinflation– largely because nations borrowing in another currency (US$) will struggle to repay if their domestic currency and economy are in freefall because global and domestic investors lack faith in its stability. Notionally, Argentina was a Western Economy, but its efforts at self-sufficiency, lack of growth and declining wealth more closely resembled the Soviet Union. (There is a lesson in that….)

Argentina is a classic economic warning about the dangers of isolationist autocracy. While other early 20^th Century “super-exporters” like Australia and Canada have evolved into strong, democratic, competitive economics, Argentina went into long-term stagnation, political corruption and economic instability.

That led to increasingly desperate attempts to resolve the situation or distract the populace. It suffered a horrible “dirty war” in the 1970s and 80’s as the right-wing government sought out over 25,000 journalists, comedians, trade-unionists, writers and students who disagreed with them, and disappeared their bodies into the ocean. In 1982, the attempt to deflect demonstrations, and instil a sense of national pride by invading the Falklands, the Junta was trounced by the British in a text book display of military competence vs national incompetence.

Now its heading for its 10^th Default in less than 90 years. It will likely be its 4^th default since 2000. Impressive record.

When Milei was elected, Argentina was suffering 140% inflation, mass unemployment, and rising domestic poverty affecting around 40% of the population. Within a year, nearly 60% of Argentia’s population was classed as living in poverty – a direct consequence of his policies. He promised harsh medicine and he delivered it – in spadefuls.

But… his policies appeared to be working. Inflation had fallen to 2.4% There were signs of economic growth. Milei was hailed as the poster boy of the Libertarian Right – and was guest of honour at Donald Trump’s inauguration, handing Elon Musk the Chainsaw he waved on stage as a signal of his intent at DOGE (the short-lived Department of Government Efficiency.)

Milei was trying to change the mindset of Argentina – unravelling the hand of government from the economy, forcing the electorate to take responsibility, and creating conditions of economic stability – a stable currency and stable prices – to allow the economy to plant new foundations. That was the plan. And then it hit the immovable force of electorate driven politics.

The trigger for the sudden reversal in Argentina, and the gloss coming off Milei, was when local elections in Buenos Aires province (heartland of the still strong Peronist tendency) turned decisively against him, immediately destabilising local bond and stocks. It hasn’t helped there are allegations of corruption involving Milei’s sister Karina taking kickbacks – according to leaked phone tapes. He still commands substantial electoral support, but is likely to be beaten in October Mid-Terms.

Global investors have seen it all before. Here we go again. Argentine bonds went into free fall as the Market-Political calculus predicts an increasingly beleaguered Milei will seek popularity by easing up on austerity – putting the effort on inflation and peso stability under threat.

Yesterday, Argie bonds rallied on the back of the expectation of a US bailout. Today Milei will be meeting President Trump. Bessent says “all options” are on the table. Presumably this means support for the bond market, and the peso. Acutely conscious of the fate of other supplicants to the Washington Throne, Milei has profusely thanked Bessant and Trump on X. He will be wearing a smart suit to the Oval Office.

I am sure the great libertarian experiment in Buenos Aires has set the American Right Wing, the Libertarians, the Dark Alignment and the authors of Project 2025 (the blue-print for Trump v.2) a’thinking. What went wrong?

Voters. Voters didn’t like it. Now how do your correct that….? I leave that thought to fester in your head….

Out of time, and back to the day job….

Bill Blain

CEO – Windshift Capital

Author – The Morning Porridge

Partner – Shard Capital