It has been a year and a half since Javier Milei was elected president of Argentina in December 2023. It has also been a year since I published my article, “Javier Milei and the Hope of Economic Transformation in Argentina.” In this article, I discussed the gloomy prospects of Argentina’s debt and inflation-ridden economy and outlined Milei’s courageously radical plan to revive it. His proposed policies reflected an embrace of libertarianism and capitalism, and stand starkly at odds with the leftist agenda that had dominated Argentina for more than 60 years. Milei inherited a nation in crisis, and with more than one-third of his four-year term behind him, just how well has he challenged Argentina’s economic disaster?
At the heart of Argentina’s dire fiscal situation was a political system that encouraged unbridled government spending and extreme overregulation, established by former Argentine President Juan Perón in the 1940s. His pro-labor, state-driven ideology dominated the political environment for the following decades and ultimately drove Argentina’s economy into the ground. Milei has promised to use his anti-Perónist chainsaw to aggressively cut this political system down and replace it with the classical liberal policies that made Argentina prosperous a century ago.
The Perónist practice of endless money printing and borrowing to fund massive government subsidies, social programs, and state-controlled industries led to frequent debt crises and spiraling inflation. In 2023, prior to Milei’s election, Argentina’s inflation rate sat at around 130%, ranking it fourth-highest in the world. Persistent budget deficits driven by this unsustainable spending led to recurring sovereign defaults (the International Monetary Fund has bailed Argentina out more than 20 times) and recessions. Unsurprisingly concerned, foreign investors quickly withdrew their financial support, further isolating a country already separated from the world by protectionism. While poverty skyrocketed and employment dropped, Perónist leaders refused to cut back on social spending for fear of losing political support.
Milei came into office with two priorities: downsizing the government and deregulating markets. He planned to achieve the first goal by eliminating half of the government’s ministries, drastically cutting public spending, and privatizing many state-owned businesses. He planned to achieve the latter through scrapping regulations and currency and price controls, a Perónist practice that had long led to severe consumer goods shortages.
In his first year and a half, President Milei moved quickly. His efforts to cut the budget succeeded in eliminating roughly 30% of government spending. He slashed or merged the number of government industries from 18 to 8, laid off more than 30,000 government employees, shrunk welfare programs, scrapped energy and transportation subsidies, paused almost all public infrastructure projects, eliminated much funding to local governments, and froze public sector wages and pensions, which had been heavily inflated for the past several decades. His cuts have drawn heavy backlash from many Argentines, especially those reliant on social programs. Yet, while it may be painful, it is a necessary pill to swallow if the country wants a sustainable budget. Severe budget tightening for Argentina is not a matter of ideological cruelty but one of survival. The country simply cannot continue funding everything from its bloated public sector to its costly subsidy programs with money it does not have but creates through printing. Fortunately, Milei has emphatically halted the Central Bank’s money printing, breaking from a practice that fueled runaway inflation.
Deregulating the country was another priority, and one on which Milei has swiftly executed. For years, Perónist overregulation burdened businesses with excessive controls, discouraging foreign investment and creating a bloated, inefficient bureaucracy. Businesses wanting to expand were instead met with layers of red tape, arbitrary restrictions, and unpredictable government intervention. To address this, Milei created the Ministry of Deregulation and State Transformation, headed by Federico Sturzenegger, which has averaged roughly two deregulations per day since its inception. Milei’s measures eliminated or modified existing regulations in a free-market-oriented direction that spanned all industries. Milei also trimmed capital controls (measures that prevent capital from leaving the country) with the intention of attracting foreign investment.
Devaluing the peso has been another priority. With inflation far ahead of the controlled exchange rate, foreign currencies are suddenly worth a lot less. For example, a single U.S. dollar is officially worth 1,145 pesos at the time of writing — but with inflation surging, that same dollar buys less and less in real goods and services locally, unless the exchange rate keeps pace. To address this imbalance, the government initiated a crawling peg devaluation, in which the peso is devalued by 2% each month, allowing, for instance, a single U.S. dollar to buy more pesos over time. A weaker peso makes foreign currencies worth more, enticing foreign spending on Argentine goods. However, the peso remains overvalued since inflation, currently at a monthly rate of 2.8%, beats the peso’s rate of devaluation. The government is now hoping its fiscal austerity will further lower inflation to converge on the crawling peg rate. Milei has also seriously explored replacing the peso entirely with the far more stable U.S. dollar — a process known as dollarization. However, he has pointed to strong political resistance as a key obstacle.
Milei has drafted plans to privatize more than fifty state firms. State-Owned Enterprises (SOEs) in Argentina suffer from chronic mismanagement, operating without profit incentives and shielded from competition, leaving them with little motivation to improve services and productivity. Milei’s plan to privatize SOEs will reduce the fiscal burden on the state, attract private investment, and deliver more competitive services to the Argentine public.
On taxes, Milei has withheld lowering taxes across the board in fear of reducing much-needed government revenue. However, Milei has initiated tax breaks for companies investing in key sectors like energy and technology, giving Argentine companies a chance to regain ground against their foreign competitors.
The improvement in Argentina’s economy has been undeniable and remarkable. According to the latest Consumer Price Index (CPI) reports in April, Argentina’s annual inflation rate stands at 47.3%, as compared to 211% in December 2023, when Milei took office. Monthly inflation stands at 2.8%, as compared to 25.5% in December 2023. Lower inflation has prompted the Central Bank to cut interest rates from 133% in December 2023 to 29%, attracting businesses and consumers to start borrowing and spending again. Milei’s ban on printing pesos to finance the government and his drastic cuts to government spending, though painful, have successfully put Argentina on the path to achieving a sustainable inflation rate. A less widely recognized driver of Argentina’s falling inflation has been Milei’s rapid elimination of regulations, policies that have, for years, distorted prices and reduced competition. For instance, Milei ended rent controls in December 2023, leading to a tripling in the supply of rentals in Buenos Aires and a 30% drop in price. In another example, the government’s move to open the market to Starlink and other telecommunication companies has brought connectivity to large swaths of Argentina while lowering internet prices.
Milei’s cuts to government spending have also brought Argentina its first budget surplus in over two decades. In fact, Milei achieved a balanced budget in his first month in office. With a fiscal surplus, the country can rebuild market confidence, ease borrowing costs, draw in foreign investment, protect Central Bank reserves, and improve the country’s debt outlook.
The country’s economic recovery hasn’t been entirely rosy. Poverty rates initially climbed to a record high of 52.9%, and GDP continued to contract, as sudden cuts to social programs, public works, and subsidies reduced support and incomes for vulnerable groups. Protests erupted around the country, demanding the restoration of state-funded social services. Fortunately, the rapid fall in inflation boosted consumer purchasing power, reducing the poverty rate to 38.1% as compared to 41.7% prior to Milei, and a 2.1% fourth quarter growth in GDP, the country’s first in six consecutive quarters, lifting the economy out of recession. Growing economic activity was also driven by a trade surplus, as foreign investment and purchasing outweighed capital flight.
Income inequality remains a significant challenge in Argentina, with the wealthiest 10% earning 24.5% of total income. However, inequality has slightly eased under Milei’s administration. In 2022, the top 10% held 29.8% of income, while the bottom 20% earned just 5.4%. Today, the bottom 20% accounts for 8.6% of income, reflecting a modest improvement in income distribution, though it remains a problem.
It is a new era for Argentina. Milei will likely continue his fiscal austerity, market-friendly reform, government downsizing, and currency stabilization. His success cannot be ignored, though it has come at a painful cost. While his volatile, sometimes erratic, personality (as evidenced by his MAGA sympathies and use of a chainsaw at political rallies) is off-putting, Milei’s fiscal policies have largely worked. Flor Maffaia, a retired Argentine school teacher, captures the sentiment of many: “It was difficult to vote for him at first… but I see that more and more Argentines are realizing every day that his plans are working … There’s a new wind (of hope) in Argentina.”
Milei’s ability to extend his plan is dependent on the success of his party, La Libertad Avanza (Freedom Advances), in local and federal elections. While the Perónist coalition, Unión por la Patria (Union for the Homeland), has been mired in political infighting, it remains unlikely that the party that has dominated Argentine politics for more than sixty years will disappear. The next presidential election will remain crucial, as power risks returning to the Perónists and, with them, the undoing of all forms of economic revival Milei has brought about.
Regardless of the outcome in the next election, Javier Milei has made a serious case for libertarianism and capitalism. His policies should inspire other fiscally profligate countries — in the Americas and around the world — to similarly escape state-driven practices and embrace the free market.
