Argentina is undergoing dramatic economic changes under President Javier Milei, who took office in December 2023.
After inheriting one of the world’s most troubled economies, Milei implemented drastic reforms aimed at stabilizing hyperinflation, reducing public spending, and encouraging investment.
His policies have produced mixed results so far, sparking debate among economists and investors about whether Argentina is truly on the path to recovery.
The state of the economy
When Milei took office, Argentina was in crisis.
Inflation in 2023 had reached 211%, the highest globally.
The economy contracted by 1.6%, and poverty affected 45% of the population.
By 2024, inflation had slowed to a monthly rate of 2.7% as of October, though annual inflation still hovers near 200%.
The GDP is expected to contract by 3.5% this year, but forecasts for 2025 suggest growth between 5% and 6%.
Milei’s government has achieved significant milestones, including ten consecutive months of fiscal surpluses and a reduction in the country’s risk premium by 40%.
However, these improvements come at a high cost.
Poverty has risen to 53%, and real wages remain stagnant for most workers, even as private-sector wages start to rebound.
How did inflation slow down?
A key achievement of Milei’s administration has been the significant slowdown in inflation.
This was made possible through tough monetary and fiscal policies.
The government eliminated money-printing to fund deficits, phased out interest-bearing liabilities at the central bank, and devalued the currency.
These moves reduced the growth of the money supply, a major driver of inflation.
Monthly wholesale-price inflation, which spiked to 54% in December 2023, has now fallen to 2%.
Analysts expect inflation to reach international levels by 2025, allowing for the eventual lifting of capital controls and foreign exchange interventions.
JPMorgan forecasts annual inflation of 29% by the end of 2025, the lowest since 2017.
Fiscal discipline and spending cuts
Milei’s approach to fiscal policy has been equally aggressive.
Public spending was slashed by 30% in real terms, with ministries consolidated and infrastructure projects halted.
Social benefits and subsidies for food, energy, and transport were drastically reduced.
The government’s focus on fiscal balance has not only stabilized finances but also decreased debt-to-GDP ratios.
However, these cuts have led to widespread public dissatisfaction. Students protested against university budget cuts, while state workers and pensioners faced wage freezes and benefit reductions.
The policy of “cold progression,” where inflation erodes real incomes, has deepened the economic strain for millions of Argentinians.
Investment and the private sector
Milei’s administration has worked to attract foreign investment, particularly in energy and raw materials.
Argentina is rich in lithium, copper, and renewable energy resources, making it an attractive destination for investors seeking alternatives to authoritarian regimes.
The Régimen de Incentivos para Grandes Inversiones (RIGI) law, passed in July, offers 30-year tax breaks for investments exceeding $200 million.
These incentives have already begun to bear fruit. Foreign companies have announced investments in lithium and other sectors, contributing to a 15% boost in aggregate savings as a share of GDP.
However, critics note that investment levels remain below their potential due to persistent risks and uncertainties.
The human cost of reforms
While investors celebrate fiscal discipline and lower inflation, the human cost of these reforms is undeniable.
Poverty now affects over half of Argentina’s population, and purchasing power has eroded sharply.
Energy and rental costs have risen, especially for low- and middle-income households. Rent liberalization has increased housing supply by 170% and reduced new rental prices, but existing tenants face steep hikes.
Unemployment has also increased as public works projects were canceled, and wage growth has lagged behind inflation.
Informal workers, who make up nearly half of Argentina’s labor force, are especially vulnerable. Many economists argue that the pace of reforms may be too rapid for the country’s social fabric to handle.
Is this time different?
Despite all the challenges. Investors are optimistic about Argentina’s future under Milei.
The country’s stock market has risen 125% this year, and dollar bonds have returned nearly 90%.
Most hopeful analysts suggest that this administration represents Argentina’s best chance to achieve economic stability.
Source: Reuters
However, Argentina’s history of economic crises must not be taken lightly.
The collapse of Mauricio Macri’s reformist government in 2019, following a similar investor rally, is a great reminder.
Without broader social and political support, Milei’s reforms risk being reversed, especially if poverty and inequality continue to worsen.
What can we learn from this?
Milei’s policies offer lessons for other nations grappling with economic crises. His administration demonstrates the power of fiscal discipline and monetary reform in taming inflation.
Yet, it also highlights the risks of pursuing austerity without sufficient social safeguards.
Policymakers should balance long-term fiscal goals with immediate social needs to avoid public backlash.
Nevertheless, Argentina remains a high-risk;high-reward market for global investors.
The potential for sustained growth is indeed real, but it hinges on Milei’s ability to maintain political support and deliver tangible improvements in living standards.
The 2025 midterm elections will be a key test of his mandate.
Argentina’s journey under Milei is far from over. Whether his policies lead to a lasting recovery or another cycle of instability will depend on his ability to manage both economic and social challenges.
Argentina is attempting to rewrite its economic story, and perhaps we should allow the country some more time.
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