Argentina voted today in its unusual nationwide presidential primaries, and the strongest individual performance came not from either of the political movements that have dominated the country for decades but from Javier Milei, a libertarian economist who entered national politics only recently. Milei has campaigned on proposals including drastically reducing government expenditure, dollarising the economy and eventually eliminating Argentina’s central bank. In an economically stable country, several of those proposals might appear politically extreme. Argentina is demonstrating how prolonged institutional failure can change what voters consider extreme in the first place.
The economic context is essential. Argentina entered this election with annual inflation well above 100%, a rapidly depreciating peso, persistent fiscal deficits, declining foreign-exchange reserves and another difficult relationship with the International Monetary Fund. None of these problems appeared suddenly under the current government. Argentina has experienced repeated inflation, debt and currency crises across governments of different ideological orientations. Citizens therefore are not simply evaluating whether President Alberto Fernández’s administration managed the economy badly. They are evaluating a political-economic system that many believe has failed repeatedly under several different governments.
This changes the politics of risk. Normally, an incumbent or established party possesses an advantage because radical alternatives create uncertainty. A voter may dislike current policy while fearing that an outsider proposing dramatic institutional change could make conditions worse. Economists would describe part of this as status-quo bias: when the existing system functions tolerably, people require substantial expected gains before accepting the uncertainty of replacing it.
But the value of the status quo falls when the status quo itself becomes unstable. If inflation is eroding savings every month, exchange controls complicate ordinary economic activity and repeated governments appear unable to stabilise the currency, continuity no longer feels safe. The choice becomes not stability versus experimentation, but one form of risk versus another.
That may be the most important mechanism behind Milei’s rise. He does not need to persuade every voter that dollarisation or abolishing the central bank is a low-risk strategy. He needs enough voters to believe that maintaining Argentina’s existing institutions is also high-risk. Once that happens, the burden of proof facing radical reform falls substantially.
This is why repeated policy failure can produce endogenous political radicalisation. Voters do not necessarily become ideologically extreme because their underlying values suddenly change. The expected payoff from moderate alternatives falls because those alternatives have been tried repeatedly without solving the problem. Policies previously outside the political mainstream begin entering the feasible set.
Argentina’s inflation is particularly destructive politically because inflation damages more than purchasing power. It damages the ability to make decisions across time. A worker receiving a salary needs to estimate what that salary will purchase next month. A business deciding whether to invest needs some expectation about costs and demand. A household saving for a home needs a store of value. When prices and exchange rates become persistently unstable, ordinary economic planning becomes harder.
Money is therefore an institution of trust as much as a medium of exchange. Citizens accept pieces of paper or digital balances today because they expect other people to value them tomorrow. Persistent inflation weakens that expectation. People begin converting pesos into dollars, goods or other assets as quickly as possible because holding domestic currency becomes costly.
That behaviour can reinforce the problem. If everyone expects the peso to lose value and therefore tries to exchange pesos for dollars, demand for dollars rises and pressure on the peso increases. Inflation expectations become partially self-fulfilling.
Central banks normally attempt to anchor those expectations by convincing households and firms that inflation will eventually return towards a predictable target. Credibility therefore matters almost as much as the current interest rate. If people trust the institution, tighter policy can influence expectations before inflation actually falls.
Argentina’s central bank possesses much weaker credibility because the country has experienced repeated monetary instability and governments have frequently relied on monetary financing or policies that citizens associate with inflation. Milei’s proposal to abolish the institution therefore derives political power from an important question: what is the value of an institution if citizens no longer trust it to perform its principal function?
His answer is dollarisation. Argentina would replace the peso with the US dollar, removing the domestic government’s ability to create its own currency. The appeal is straightforward. If politicians cannot print pesos, they cannot finance deficits through money creation in the same way. Dollarisation would therefore attempt to import the credibility of the Federal Reserve and impose a hard constraint on Argentine monetary policy.
Several countries, including Ecuador and Panama, use the US dollar officially, demonstrating that dollarisation is economically possible. The harder question is whether it is desirable for Argentina under current conditions.
Dollarisation can reduce currency risk and potentially help stabilise expectations, but it also removes monetary-policy autonomy. Argentina would no longer possess an independent exchange rate capable of adjusting when the economy experiences a shock. It would also surrender the central bank’s conventional ability to act as lender of last resort using a currency it can issue freely.
That is a substantial institutional trade-off.
Argentina would gain credibility partly by giving up flexibility.
This is the logic behind many commitment devices. Governments sometimes deliberately restrict their own future choices because citizens do not trust them to exercise discretion responsibly. An independent central bank restricts politicians’ influence over monetary policy. A currency board restricts monetary creation further. Dollarisation effectively outsources monetary sovereignty almost completely.
The economic question is therefore not whether sovereignty is inherently good. It is whether Argentina currently receives enough value from monetary sovereignty to justify the credibility cost created by how that sovereignty has been used.
That is a much harder question than simply saying “countries should control their own currency”.
Milei’s broader proposal to reduce the state follows similar logic. Argentina has large public expenditures, subsidies and extensive state involvement in the economy. Milei argues that fiscal deficits and political patronage have become embedded in the existing system, making incremental reform insufficient. His political language attacks what he calls the “caste”, presenting traditional political parties as beneficiaries of institutions they have little incentive to reform.
This is classic populist structure: politics becomes a conflict between ordinary citizens and a self-serving elite. Yet dismissing the argument merely because it is populist would miss why it resonates. Political systems can genuinely create concentrated benefits for organised groups while distributing costs across taxpayers, consumers or future generations.
The question is whether Milei correctly identifies those rents and whether his proposed solution removes them without destroying valuable state capacity.
Cutting government expenditure is easy to describe in aggregate and much harder to implement specifically. Every expenditure has a recipient. Energy subsidies reduce household bills. Public-sector salaries support workers. Universities, healthcare, pensions and infrastructure require funding. A politician can promise to cut “waste”, but serious fiscal consolidation eventually requires identifying which concrete benefits disappear or which taxes rise.
Argentina’s problem is therefore not simply that government is large. It is that the state needs enough fiscal credibility to finance whatever size of government citizens choose sustainably.
A smaller state running persistent deficits can still experience fiscal crisis.
A larger state financed through stable taxation can remain sustainable.
The relevant relationship is between expenditure, revenue, growth and borrowing rather than an ideological number determining the correct size of government.
This is where Milei’s rhetoric will eventually encounter arithmetic if he reaches office. Campaigns can identify the state as the problem. Governing requires distinguishing state capacity from state expenditure. Cutting an inefficient subsidy can improve public finances. Cutting the tax administration responsible for collecting revenue could worsen them. Removing unnecessary regulation can increase productivity. Weakening regulatory institutions required for competition can allow private monopolies to expand.
A state can become smaller and weaker simultaneously.
Those are not the same objective.
Argentina needs a more capable state even if voters decide they want a less expensive one.
This distinction is particularly important because Latin American history contains repeated cycles in which governments respond to economic crisis through dramatic ideological swings. One administration expands the state and accumulates fiscal imbalances. Another implements aggressive austerity and market reform. Social costs generate political backlash. A subsequent government reverses parts of the reform. Investors lose confidence that any policy regime will persist.
The instability of policy itself then becomes economically costly.
Businesses hesitate to invest because tax, currency and regulatory arrangements may change after every election. Citizens move savings abroad because they do not trust future governments to preserve value. Governments respond with capital controls. Controls create additional incentives to avoid the domestic financial system.
Policy instability becomes institutional instability.
Argentina therefore needs something more difficult than one successful stabilisation programme. It needs a policy framework credible enough to survive political alternation.
That requires some degree of cross-party agreement over basic macroeconomic institutions even when parties continue disagreeing over distribution.
Germany’s major parties can disagree substantially over taxation and welfare without debating whether the currency itself should survive every election. Argentina’s recurring crises have made even foundational economic institutions politically contestable.
Milei’s rise is therefore both a response to institutional weakness and potentially another source of institutional disruption.
That does not mean his proposals are necessarily wrong. Radical reform can sometimes become necessary precisely because incremental policy cannot break a dysfunctional equilibrium. Countries experiencing hyperinflation or severe fiscal crisis have historically required dramatic stabilisation measures.
The relevant question is whether the reform addresses the mechanism producing failure or merely demonstrates political willingness to break things associated with the old system.
Disruption is not reform by itself.
An institution should disappear because another arrangement performs its function better, not because destruction communicates strength.
The political attraction of disruption is understandable when trust collapses. If citizens believe the existing system is fundamentally corrupt, politicians promising careful technocratic adjustment can appear like defenders of the system itself. An outsider willing to abolish institutions signals that they are not constrained by the same networks.
Radicalism becomes a costly signal of anti-establishment credibility.
A conventional politician can promise change while voters suspect compromise will follow. A politician proposing to abolish the central bank is harder to interpret as secretly committed to preserving the status quo.
The extremity of the proposal itself becomes evidence of sincerity.
This is politically powerful and institutionally dangerous because destroying constraints can demonstrate commitment without proving competence.
Milei’s rise also reflects generational frustration. Younger Argentines have spent much of their lives under recurring economic instability and may possess weaker attachment to the parties associated with earlier periods of political identity. For a voter who has never experienced a stable peso, warnings that radical reform could destabilise the monetary system may carry less force because the existing system does not feel stable already.
Political memory changes risk perception.
Older citizens may remember previous crises and failed experiments differently. Younger citizens evaluate alternatives against the institutions they personally inherited.
This is why political establishments cannot rely indefinitely on historical achievements. Peronism has enormous historical significance in Argentina and remains a powerful political identity, but younger voters are not obligated to evaluate it through the social transformations of the twentieth century. They judge what the institutions associated with it deliver now.
Performance legitimacy depreciates.
The same applies to the centre-right opposition. Milei’s breakthrough is not merely a rejection of the governing Peronists. It is also evidence that many voters do not consider the conventional opposition sufficiently different from the political system they blame for repeated crises.
That makes today’s result more significant than an ordinary anti-incumbent vote.
An anti-incumbent election transfers power between established alternatives.
An anti-system election changes which alternatives voters consider legitimate.
The danger is that anti-system politics can weaken the institutions needed to govern after victory. Legislatures, courts, bureaucracies and central banks can be frustrating precisely because they prevent leaders from implementing programmes immediately. Outsiders can interpret that friction as evidence of the “caste” obstructing popular will.
But institutional friction often exists intentionally.
A president should not be able to rewrite every economic rule alone because future presidents will possess the same power.
This is the veil-of-ignorance test again. Milei’s supporters should evaluate presidential powers as though a future Peronist president will inherit them. Peronists should evaluate institutional constraints as though Milei may legitimately win an election and use them.
Rules become durable when both sides prefer preserving them even while losing.
Argentina’s challenge is therefore larger than inflation. It is rebuilding enough institutional credibility that economic policy stops being reinvented after every political crisis.
That requires stabilising prices, reducing fiscal imbalances and increasing productivity. It also requires citizens believing that contracts, currency arrangements and regulatory rules will remain sufficiently predictable regardless of which party governs.
Predictability is itself an economic asset.
Investors pay for it through lower risk premiums.
Households respond through greater willingness to save domestically.
Businesses respond through longer-term investment.
Governments respond through lower borrowing costs.
Trust has a macroeconomic return.
Argentina currently pays heavily for lacking it.
Milei’s success tonight suggests many voters are willing to gamble on a dramatic attempt to restore that credibility because gradual promises no longer persuade them.
Whether that gamble is rational depends partly on the probability assigned to two different failures: the failure of radical reform and the continued failure of the existing system.
Outside observers often focus overwhelmingly on the first because radical change is visible.
Argentine voters have spent years experiencing the second.
That difference in reference points explains why policies that look extraordinarily risky from abroad can appear less risky inside the country.
The status quo is not a neutral baseline when the status quo itself is crisis.
Argentina’s election is therefore becoming a referendum on something larger than Javier Milei. It is testing how long a political system can repeatedly fail to provide monetary stability before voters stop believing conventional institutions deserve another attempt.
Moderation is politically attractive when institutions function moderately well.
When inflation exceeds 100%, savings lose value and governments repeatedly return to the IMF, moderation can begin looking like another name for continuation.
That does not make radicalism correct.
It changes the comparison.
Milei’s greatest political advantage may therefore be that Argentina’s existing system has lowered the perceived cost of experimenting with almost anything else.
For established parties, that should be the most uncomfortable lesson from tonight. Voters do not suddenly become willing to abolish central banks because one charismatic economist persuaded them that institutions are unnecessary.
They become willing to consider it when the institutions they already have stop convincing them they work.
