Argentina’s Milei celebrates his first anniversary in power. This is how his shock measures are reshaping the economy
BUENOS AIRES, Argentina — When Libertarian President Javier Milei Since taking office a year ago, Argentinian supermarkets have recorded price increases almost daily. Middle-class families tried to spend their rapidly depreciating pesos as quickly as they received them, and economists warned that the country was on the brink of hyperinflation.
It was popular indignation at this upside down economy which fueled the rise of Milei, a self-proclaimed “anarcho-capitalist” and former TV pundit who rose to power promising to “blow up” the central bank, take an ax to the bloated government and kill dizzying inflation.
It was a nearly impossible job, and Milei’s lack of government experience, her unkempt hairstyle, her sexual boasts, and her missionary zeal for her dead dog, the Rolling Stones and the free market did not inspire much confidence in a country with a history of failed economic reforms.
“When he took office, it was not clear that he could govern Argentina,” said Marcelo J. García, Americas director at geopolitical risk firm Horizon Engage. “It was Mr. Nobody.”
Upon taking power, Milei implemented a series of austerity measures, including cutting energy and transportation subsidies, dismissal of tens of thousands of civil servantsfreezing public infrastructure projects and imposing a freeze on wages and pensions below inflation.
It was brutal. Unemployment has soaredeconomic activity declined and poverty has increased.
But signs are now emerging that Argentina’s bizarre and long-mismanaged economy is in trouble. It’s starting to seem a little more normal.
Monthly inflation fell, bonds have recovered and the closely watched gap between the black market dollar and the official rate has narrowed to as much as 44 percent. Argentina’s country risk index, an influential measure of default risk, is at its lowest level in five years.
“He reaches this anniversary at the best moment of his administration,” García said.
Inflation, Argentina’s perpetual scourge and Milei’s top priority since he came to power, has slowed from a monthly rate of 25.5% in December 2023 to only 2.7% in October — its lowest level in three years.
“Inflation has fallen faster than anyone expected,” said Ignacio Labaqui, senior analyst at Buenos Aires-based risk consultancy Medley Global Advisors. “It’s something that validates his speech and maintains his popularity.”
In a sign of Milei’s long road ahead – and the total disaster he inherited – Argentina’s annual inflation rate remains at 193%.
But Argentines are more attentive to monthly inflation, seeing this sharp drop as a sign that Milei inflation budget shock therapy is paid.
“Last year it was a shock to the system, I couldn’t keep up with the prices,” said Jazmin Quintana, a 34-year-old deli worker. “I’m not saying that I like this guy, I find his personality very strange and aggressive, but I admit that if he continues on this path, I will be very happy.”
A stronger peso also boosts confidence. The price of the dollar on the black market has fallen since July, narrowing its gap with the official rate of 980.
Chileans, once accustomed to bargain shopping in Argentina, are now surprised to see the reverse traffic. Shoppers who can’t afford iPhones and kitchen appliances in Argentina are arriving in Chilean border towns by the busload to get the most bang for their buck. The customs office was briefly closed last month because officials were overwhelmed.
The currency’s appreciation is supported by a new tax amnesty aimed at encouraging Argentines to declare their hidden savings in US dollars – sums stored in offshore bank accounts and under mattresses. Before the first phase expired on October 31, the project attracted some $19 billion from Argentina’s banks, the tax agency reported, increasing scarce foreign exchange reserves.
But a strong peso also carries risks. squeeze national industry by making exports more expensive, dissuading investors and raising fears of a crash. Foreign visitors are being warned of higher prices as the peak tourist season begins.
“The prices are INSANE,” reads a popular Reddit post about traveling to Argentina, filled with warnings about $50 dinners and $100 T-shirts.
Argentina recorded its first budget surplus in 12 years. has a high cost. Milei stopping the rise in inflation for university budgetscausing some universities to struggle to keep their lights on and elevators running. He downgraded the Ministry of Culture, closed the National Theater Institute, shut down a state-funded news agency and removed funding for scientific research.
He suspended public works projects, leaving cities littered with white elephant structures. An estimated 200,000 construction workers lost their jobs last year, according to the Argentine Chamber of Construction.
Brutal austerity has deepened Argentina’s recession, with consumer spending falling 20% over the past year and the poverty rate hitting a two-decade high of 52.9% in the second half of last year.
Argentinian retirees are perhaps the most powerful symbol of conflict caused by Milei budget shock.
Some of the government’s biggest savings have been made by keeping the real value of pensions low. The average minimum monthly pension is only $300.
“We have always been in bad shape, but now things are even harder,” said Rubén Cocurullo, 76, among dozens of retirees protesting last week in front of the social protection office in Buenos Aires. “Do they want to kill us? »
In a country with a long history of noisy street protests, it is striking that the mass unrest predicted by experts last year has not materialized.
The fact that his approval rating remained at around 50% also shows how desperately Argentines wanted change after years of crisis.
“Curiously, there comes a point in all societies when the cost of fiscal adjustment becomes lower than the cost of continued inflation,” said Sebastián Mazzuca, an Argentine political scientist at Johns Hopkins University. “It’s like a fire. There are people seriously injured, but the fire has been put out, right?
It helps Milei that Argentina’s left-wing Peronist opposition is in disarray, with former President Alberto Fernández accused of beating his ex-wife while in power.
Many also attribute social peace to Milei’s managing of expectations. He warned that things would get worse before they got better.
But now, as an ebullient Milei declares his government the most successful in history and assures Argentines they will soon see the economic recovery he promised to follow after the pain, the bar is being raised even as the risks remain.
To fulfill his promise to transform the heavily regulated country into one of the world’s freest economies, Milei must lift strict currency controls. This requires a new injection of money or a new agreement with the International Monetary Fundwhich would ease pressure on billions of dollars in debt payments due next year.
Foreign investors, as well as the IMF, to which Argentina owes an unprecedented $44 billion, expressed their excitement over Milei’s changes. But, still haunted by the Argentine crisis of 2001 – which culminated in the largest foreign debt default in modern history – they remain cautious.
“Argentina still appears mired in a major waiting period,” consultancy Zuban Córdoba and Associates said in a report on Milei’s first year.
The radical populist hopes to profit from his budding connections with President-elect Donald Trump and tech billionaire Elon Musk. As president of the IMF’s largest shareholder in 2018, Trump played a key role in Argentina securing a record $56 billion loan.
The three dined and danced together at the Trump Mar-a-Lago club in Florida last month. Milei claims his brutal cost cuts inspired Trump and Musk to plan their what is called the Department of Government Effectiveness.
Last week, the Conservative Political Action Conference held its roadshow in Buenos Aires, where Milei and right-wing politicians denounced socialism, praised Trump and promised to fight what they saw as the global scourge of liberal “awakening”.
“Everyone thought we were going to fail politically,” Milei told the cheering crowd. “Today they admit, through gritted teeth, that they are surprised.”
___
Associated Press reporter Debora Rey contributed to this report.
____
