Special Report: How to Invest in Argentina

Opportunity and Profit from the Javier Milei's Market Reforms

Three things before we get started today:

1. The Edinburgh Fringe this August. As per usual, I am going to be doing one of my “lectures with funny bits”. This one is all about the history of mining. It’s called Shaping the Earth. Not quite sure what that means, but it sounds good. As always, I shall be delivering it at Panmure House, where Adam Smith wrote Wealth of Nations. It’s at 2pm most afternoons. Please come. Get your tickets here.

2. Following on from conversation I had with someone last night, if it’s my comedy you want me for, then please sign up for my comedy letter, which is geared around that.

3. Due to a size of this report, and a desire not to overwhelm your inboxes, there will be no Sunday morning thought piece this week.

Right. Argentina …

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The Opportunity

Investment writer Rob Marstand, who is based in Buenos Aires, argues that this is a secular change in Argentina. It’s potentially as significant as the UK at the onset of Margaret Thatcher in 1979, with all her free market reform to follow, or the US with Ronald Reagan in 1980. There are also parallels with countries in eastern Europe, Poland especially, as they emerged from communism in the 1980s. Or even China as it deregulated and went capitalist.

It’s important to understand the scale of what is possible. Argentina was once as rich as the US. What if it were to regain its old majesty? How much upside is there?

There is no shortage of ambition.

Let’s examine what’s possible.

Real libertarianism?

Many will take the mickey out of the die-hard left-winger because, when confronted with all the places that socialism has been tried—China, Russia, Germany, Cuba, Venezuela et al—the left-winger retorts, “that wasn’t real socialism.”

The libertarian, meanwhile, can chirp from a position of safety knowing that real libertarianism has never been tried (you might make the exception of Britain in the late 19th century when gold was money, taxes were low, and government was limited, but let’s not get hung up on that), so the philosophy has never been properly put to the test.

But now in Argentina, we have an outspoken libertarian in charge. Javier Milei is the most aggressively pro-free market leader in the world. The purists may not be satisfied—he spoke at the World Economic Forum, for example, which proves he is a puppet, apparently—but real life is always a lot more muddy than purists would like. Milei also has many ideological enemies within his own country, running many of its institutions, so he might not be able to get many of his reforms through. But he is, nevertheless, an outspoken libertarian, and so, real or not, libertarianism will be judged on Milei’s success or failure.

If Milei succeeds, other nations will surely follow his blueprint. If his policies fail, libertarians can resume their place criticising from the sidelines.

It is dangerous to conflate ideology and investment. It’s nice when the two coincide, as in bitcoin, but being wedded to an investment for ideological reasons can also make you too slow to sell.

However, when your philosophy is pro-free-market and capitalist—and free-market capitalism is supposed to be good for investment—surely one should be investing in Argentina.

Elon Musk certainly thinks so. Last week he posted a picture of himself along side Millei saying “I recommend investing in Argentina”.

Let’s start with a quick overview. 

The 8th largest country in the world

Argentina is enormous, but its population is only 46 million. 16 million of those people—over a third—are centered in and around the capital, Buenos Aires, on the south side of the Río de la Plata (River of Silver) estuary. 3 million live in the city itself and another 13 million in the surrounding conurbation, which makes up Buenos Aires province. The next largest city is Córdoba with 1.4 million people, then Rosario with a million. The country's population is predominantly urban, with around 92% of people living in cities.

Led by Manuel Belgrano, the country found independence from Spain after a secessionist civil war between 1810-1818, and it went on to have quite the 19th century, buoyed up by its farming industry: grain, sheep and cattle, leather, and wool, so that by the time of its Belle Époque in the early 20th century it was one of the richest countries in the world on a per capita basis—as rich as the US. Buenos Aires was the "Paris of the South," and its wealth is apparent in the grand architecture of the city.

Fast forward to today and 40% of the population live below the poverty line, with 10% in extreme poverty. Argentina's shift from wealth to poverty was brought on by successive incompetent or corrupt leaderships, economic mismanagement, inflation, debt—you name it, Argentina’s been there.

The country is extraordinarily rich in natural resources. The main exports remain agricultural produce: grains especially, but also beef and other livestock. It produces lots of wine. (I dream of doing a steak and red wine tour). In addition to the farmland, there is oil and gas in the south, and copper, gold, silver (the country is named after it), and lots of lithium in the north (no doubt why Musk and Milei were talking).

So much of those natural resources remain undeveloped. I remember being invested in a silver company, Aquiline Resources, which got bought by Pan American Silver in 2009 for hundreds of millions. 15 years later that extraordinary deposit, Navidad, is still years from producing. Pan American has been unable to move it forward. But Milei is taking steps to free up development and encourage overseas investment, making the case for investment in Argentine mining and other natural resources quite compelling. (A piece on Argentine junior mining opportunities is probably warranted at some point).

Demographics

Argentina’s population is mostly of European descent. Lots of Spanish, for obvious reasons, but also Italian—some 60% of the population is thought to have Italian blood. There are also many British—we built the railways and we gave them football (more fool us). Welsh is still spoken in Patagonia. A long time ago I had an Argentinian girlfriend with the surname Stuart—obviously Scottish.

There are plenty of French and Germans too—about 2 million people have German ancestry. Famously, many fleeing Nazis went there after World War Two, including Hitler himself, if you believe some versions of the story.

The country also has Latin America’s largest Jewish population, indeed more Jewish people than Britain—many Jewish refugees fled there in the 1930s.

Of late, the country has seen large immigration from the neighboring countries of Bolivia and Paraguay, many hundreds of thousands from Venezuela, and also a large influx of Russians since the invasion of Ukraine.

Argentina is a relatively young country, with a median age of around 32.4 years. Approximately 24.5% of its population is under the age of 15, and about 10.8% is 65 years and older.

Politics: What is Milei doing and will it work?

Milei’s plan is: to balance the budget—this is non-negotiable, he says—slash state spending, root out corruption in the public sector, of which there is lots, get rid of red tape and deregulate, lower taxes and simplify them, lower inflation, and stop printing money. I am with you brother.

He is certainly acting on his promises. The budget is more balanced. Spending has been slashed. He has stopped the money printing. Inflation, at 8.8%, has come down. That’s month on month and people are celebrating - that’s how bad things were. The US dollar also finds widespread use. Hopefully, Milei, like Nayib Bukele in El Salvador, will embrace bitcoin too (I’m speaking at a bitcoin conference there later in the year). Tax cuts are ongoing. Import and export tariffs need to go too. There are still capital controls (lots of Argentines have money offshore that they may want to bring back should these be lifted) but I am told these are being addressed. Regulation is being simplified—plenty more to go.

The big date for Javier Milei is May 25, when he summons the 23 provinces and Buenos Aires to sign his ten-point agreement to reconstitute Argentina, subject to the prior approval for his new fiscal pact and his "Ley de Bases y Puntos de Partida para la Libertad de los Argentinos", an extensive legislative package aimed at liberalizing the Argentine economy and reducing state intervention.

The details of the agreement are:

1. The inviolability of private property.

2. Non-negotiable fiscal balance.

3. The reduction of public spending to historical levels, around 25% of the Gross Domestic Product.

4. A tax reform that reduces the tax burden, simplifies the lives of Argentines, and promotes trade.

5. The re-discussion of the federal co-participation of taxes to put an end to the current extortive model forever.

6. A commitment by the provinces to advance in the exploitation of the country's natural resources.

7. A modern labor reform that promotes formal employment.

8. A pension reform that gives sustainability to the system, respects those who contributed, and allows those who prefer to subscribe to a private retirement system.

9. A structural political reform that modifies the current system and realigns the interests of the representatives and the represented.

10. The opening to international trade, so that Argentina becomes a protagonist of the global market again.

A lot hinges on May 25 and how much Milei reform can get over the line without concession.

I have been speaking to a variety of Argentinians and others that live there, and the general consensus is that Milei is learning fast. He was politically a bit clumsy at first, but overall his first 120 days were a lot more impressive than, for example, Mauricio Macri’s, who was President from 2015 to 2019 (the last time many thought Argentina would be “saved”).

“I would prefer the Peter Capaldi version of Javier Milei,” my Argentinian friend, former fund manager Mariano, tells me. “But he is doing well.”

“You have to understand Peronism is never going away,” Mariano continues. “It is in the mentality. Maybe 40% of the country is Peronist. It keeps finding new variations. Kirchnerism, for example, though that is disappearing. The Peronist structure still has a lot of power. Milei has captured the imagination of the 55%, who are fed up with it. But Peronism still has the power to destabilise the country. In time it might persuade some of that 55% away from Milei. 

“But, for now, Milei’s opposition is not credible. There is so much in-fighting and the shambles is to Mieli’s advantage. Milei has a brilliant spokesman in Manuel Adorni, and he keeps destroying the opposition narrative”.

I have a very jaded/realistic/cynical, depending on your point of view, Italian investor friend, Marco, who lives there. “It feels a little less desolate than 18 months ago,” he tells me. “But Argentina will only ever be a trade.”

Is Marco right? Have we been here before? There have been many false dawns in Argentina.

“There was a lot of hope around Macri,” says Mariano. “That didn’t work.”

But this time it does feel different. We have never had a Javier Milei before: a self-declared minarchist who cites Murray Rothbard and posts pictures of himself taking a chainsaw to the public sector. The world never got excited about Macri in the way that it has about Milei.

(By way of an example, I looked on the WEF website on the day of Milei’s speech there earlier in the year. Milei had something like 20 million views. The next most-watched speech was France’s Emanuel Macron with 20,000. Libertarianism is becoming the dominant political philosophy of the internet, and Milei is uppermost.)

He might get undermined from within (there have already been strikes aplenty), he might lose the next election, he might even be assassinated—his enemies hate him enough. For now though, the policies are working better than expected and quicker than expected.

NB I would really like to go to Argentina to make a documentary about Javier Milei and his reforms. Please let me know if this is something you would like to see.

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