Sam Bidwell writes on Argentina’s nascent recovery.
“Milei promised to cut tax and spending, fire government employees, and get the economy moving again. 1 year on, it seems to be working”
In 2023, after decades of turmoil, Argentinians elected maverick libertarian Javier Milei as President. Milei promised to cut tax and spending, fire government employees, and get the economy moving again. 1 year on, it seems to be working.
But first, some context. In the early 20th century, Argentina had one of the highest per capita GDPs in the world – ahead of countries like France and Italy. Thanks to decades of mismanagement, the economy is now in turmoil – in relative terms, it has declined steeply.
In January, year-on-year inflation had soared to an incredible 211 percent. The country’s rapid inflation is largely the result of public spending. For years, the country has run large deficits, despite sluggish growth, in order to appease the public.
When the Government has been unable to cover the costs of this spending, it has borrowed or printed more money – resulting in inflation. For ordinary Argentinians, this has driven up the cost of essential goods and created an environment in which businesses struggle to grow.
Because of this borrowing and printing, the country has entered into a vicious cycle of debt defaults. Since 1980, it has defaulted on its debt five times – with the latest default coming in 2020. This is an incredible decline for one of the world’s most promising economies.
“When the Government has been unable to cover the costs of this spending, it has borrowed or printed more money – resulting in inflation”
Enter Javier Milei.
Milei is an economics professor, and a self-described anarcho-capitalist, who was first elected to Congress in 2021. He is known for his combative style, and for his contempt for the state. Incredibly, he also owns four clones of his beloved dog, Conan.
Milei emerged as a surprise candidate in the October 2023 Presidential race. After a close first-round, Milei beat establishment politician Sergio Massa to triumph in the final ballot, on 19th November 2023. So what has the maverick libertarian achieved so far?
- First, he has cut state spending – aggressively.
- He has reduced the number of government departments in the country from 19 to 10.
- His new Ministry of Human Capital merges the previous departments of Social Development, Education, Culture, and Labour.
- He’s also fired thousands of government workers.
“He’s ending provision of free healthcare to immigrants in Argentina and introduced new fees for foreign university students”
When he took office, the Argentinian state had about 341,000 employees – today, that figure stands at 317,000, with thousands more cuts to come in the next few years. Retained employees have seen pay freezes or cuts.
He’s ended costly subsidies for energy, rent, and transport, while cutting non-essential local government funding. He’s vetoed Congressional plans to introduce an ‘inflation lock’ on pensions in the country, and to increase funding for public universities. And he’s also taken action on immigration.
He’s ending provision of free healthcare to immigrants in Argentina and introduced new fees for foreign university students. He has also proposed plans to automatically deport foreign criminals from the country.
For Milei, Argentina is a country that needs to learn to live within its means, after decades of inflationary borrowing and spending. With inflation under control, the country should be able to win back international investors, and grow the economy.
“For international investors, falling inflation is a sign that Argentina can once again be trusted as a place to spend money and grow businesses”
But is it working?
Well, the country’s budget deficit has finally turned into a surplus – meaning that Argentina has begun to get its debt repayments under control. Month-to-month, the Argentinian government now spends less than its earns, setting the country back on the road to recovery.
As a result, inflation has started to fall. For ordinary Argentinians, the price of everyday goods has begun to stabilise. For international investors, falling inflation is a sign that Argentina can once again be trusted as a place to spend money and grow businesses.
The country’s most important stock index, the S&P MERVAL, tracks the performance of major Argentinian companies. Since Milei took office, the MERVAL has reached record highs – indicating that investors are beginning to return to Argentina.
Meanwhile, the country’s risk profile has begun to fall, meaning that it could soon enjoy the same premiums as its South American neighbours. The country’s bonds have also hit record highs on international markets, again signalling growing investor confidence in the country.
“Milei ended rent controls across the country early in his tenure – and since that time, the supply of apartments in Buenos Aires has risen by 170%, while rents have fallen by 40%”
According to the IMF, Argentina is projected to grow 5% in 2025 and 4.7% in 2026. That’s compared to 3% in neighbouring Brazil, and 2.1% in Chile – signalling that Argentina could truly be about to fulfil its enormous economic potential.
For many ordinary Argentinians, life is beginning to improve. Milei ended rent controls across the country early in his tenure – and since that time, the supply of apartments in Buenos Aires has risen by 170%, while rents have fallen by 40%. As a result, Milei is popular.
Despite his ‘shock therapy’, his party is leading in the polls for the 2025 legislative elections – and his approval rating stands at around 48%. Economic optimism is also on the rise and stands at the highest level since 2015.
Of course, with three years left as President, Milei still has significant challenges ahead of him. Argentina’s incredible “Milei boom” shows what politicians can achieve with sufficient commitment. It also shows us what can happen when the state gets out of the way.
By cutting burdensome regulations, reducing unnecessary spending, and challenging political orthodoxy, Milei looks set to turn around Argentina’s ailing economy. Politicians across the world could learn from Milei’s example – we should all dare to challenge received wisdom.
Reproduced with kind permission of Sam Bidwell, Director of the Next Generation Centre at the Adam Smith Institute, Associate Fellow at the Henry Jackson Society, although views are his own. Sam can be found on X/Twitter, on Substack, and can be contacted at [email protected]. This article was originally published as a X/Twitter Thread at https://x.com/sam_bidwell/status/1866594098964005206