The libertarian economist has claimed achievements such as reducing inflation and the fiscal deficit, while his adjustment policy has raised poverty rates, although experts say that a bonanza could be just around the corner.
Few Latin American countries have changed as much in the last year as Argentina. The electoral victory of economist Javier Milei was a turning point for a country that had spent two decades trying to find its financial direction. By the time Milei succeeded Peronist Alberto Fernández in power, annual inflation was a worrying 211.4% and four out of 10 Argentines lived below the poverty line.
Two decades of Kirchnerist influence, the social democratic current of the Justicialist Party, and its failed economic policies came to an end with the rise of Milei. He managed to seduce millions of dissatisfied voters through his incendiary speech against the “political caste”. At the same time, he promised to apply the “chainsaw” to the high spending of the Argentine State and to achieve the dollarization of the country in the long term.
Although “La Libertad Avanza”, the ruling coalition, is a minority in both chambers of the Argentine Congress, Milei partially overcame this obstacle by incorporating into her cabinet former collaborators of the conservative government of Mauricio Macri (2015-2019), as well as lengthy negotiations in parliament that included the moderation of several “libertarian” proposals such as the famous “Ley Omnibús”.
However, Milei also promoted economic measures using his presidential power directly. On December 12, 2023, shortly after taking office, Economy Minister Luis Caputo announced the exchange rate unification. Immediately afterward, the Argentine peso was devalued by 50%, bringing the official exchange rate to levels similar to the parallel or blue dollar .
As a result, prices for basic goods, fuel and other basic goods skyrocketed, to the point that shopping tourism was no longer convenient for foreigners. The government also eliminated the “Precios Justos” (Fair Prices) program, designed by the Fernández government to control food prices in collaboration with companies.
Meanwhile, transport and energy subsidies disappeared and as a result, Argentines had to face price increases of 35 to 40% on fuel and 30% on basic products such as wheat. Other measures seen in the following months were the increase in the PAIS tax (purchase of dollars and payments in foreign currency), 15% withholdings for certain agricultural goods and industrial exports, as well as a plan for budget cuts in public health and education.
Along the way, Milei was also forced to give in to the Peronist opposition and back down on controversial projects such as the privatization of state media and the Banco de la Nación Argentina. At the same time, the president had to reduce the scope of the declaration of national emergency and dispense with an electoral reform project with a view to the parliamentary elections of 2025.
At the macroeconomic level, the austerity plan has borne fruit: monthly inflation rose from an alarming 20.6% in January to a modest 2.7% in October, according to the National Institute of Statistics and Census (INDEC). At the same time, the elimination of withholdings for certain economic sectors and the adjustment of the exchange rate have benefited exporters in the agro-industry, Argentina's main sector. Similarly, the introduction of the RIGI incentive regime reduced bureaucratic obstacles to boost the arrival of investments in the country's mining industry.
However, many ordinary Argentines are dissatisfied with the libertarian government. The devaluation of the peso, tax increases and mass layoffs of state workers have plunged millions of citizens into vulnerable situations. For example, INDEC noted that if in the second half of 2023, 41.7% of Argentines were in poverty, a year later, the figure rises to a worrying 52.9%.
This is an increase of 11.2%, which represents the worst level in the last 20 years. Within this group, 18.1% are in extreme poverty, which indicates that at least 8.3 million Argentines do not have enough income to cover a basic food basket. As is predictable, Milei's government blames the economic ills on the legacy of the Kirchnerist period.
On December 2, the president went further and declared at a conference on artificial intelligence that his government had managed to “lower inflation without having costs in economic activity.” For Juan Carlos Ladines, economist and professor at the Universidad del Pacífico (Peru) , Milei's comment does not match reality.
“Every corrective measure in the economy has a cost. What we are seeing in Argentina is a price adjustment that is typical of any regulatory process. And that is impacting a population that has seen its income not adjusted properly. That had to happen to a certain extent, because if wages were adjusted to prices, a much more dangerous spiral would have been generated that would have led to hyperinflation,” Ladines told AméricaEconomía .
On the other hand, Pablo Lacoste, an Argentine international analyst and professor at the University of Santiago de Chile , recognizes the increase in poverty rates, but assures that there is a light at the end of the tunnel.
"There are many people who have the perception that this effort is worth it, because it leads to straightening out the macroeconomy, lowering inflation and normalizing the country's situation, which can allow the reactivation of the level of economic activity, salaries and therefore, the life expectancy of Argentines," Lacoste said to AméricaEconomía .
Once again, the figures are revealing, but in a positive sense for Milei. The latest survey by Poliarquía Consultores revealed that 56% of Argentines surveyed approve of the president's administration. However, 71% of those surveyed reject the economist's aggressive style towards his opponents.
It is striking that Milei has maintained his popularity after a year in office, despite the rise in the cost of living and the background of Macri and Fernández, who quickly lost the sympathy of the citizens. Lacoste believes that this is because a large part of the electorate recognizes Milei's efforts to end the historical ills of the Argentine economy.
“Milei is obsessively focused on straightening out the macroeconomy, reducing the fiscal deficit and getting Argentina out of this 80-year culture of inflation and rampant corruption. Every time public officials intervened in the economy, they then collected bribes to give privileges to their allies. Because this has been done on such a scandalous level and Milei seeks to combat it, among other problems, a large part of the population supports him,” explains Lacoste.
However, the academic believes that the next generation of economic reforms should focus on reducing taxes, as these reduce the competitiveness of Argentine companies internationally. If the Argentine government follows this path, Lacoste maintains that a political victory is approaching in the legislative elections of 2025.
For Ladines, on the other hand, Milei must continue to project his image as a reformist to Argentines to avoid losing credibility in his program. “Unlike the crisis of 2001, when Argentina had five presidents in one year, because nobody wanted to assume responsibility for the economic crisis, Milei is taking charge of the situation. This attitude should strengthen the position of someone who wants to achieve objectives. But he has to put it in a much clearer way, something complicated in an election year. We will have to see what response the Argentine opposition generates based on that and in what capacity he will negotiate.”
