Fiscal Austerity in Argentina: Milei’s Economy One Year On
A libertarian at heart, Milei contrasts the approaches of his predecessors with an economic project that has slashed the state, reduced government contribution to subsidies, and devalued the Argentinian peso. These shock measures have exacerbated the existing inflation crisis and increased poverty nationwide. Whether these new economic hardships remain a temporary pain or transform into continued distress remains to be seen.
Milei describes himself as an anarcho-capitalist, striving to construct a free market that regulates the populace and absorbs the state’s traditional role. His libertarian ideals pervade into the political sphere, endorsing much of the right-wing messaging which circulates online, including his support for the deregulation of firearm possession and the creation of a marketplace for human organs. A foreigner to politics in Argentina, the former economist rode to office with 55.7% of the popular vote and a strong mandate for governorship.
The actions of the incumbent Argentinian government directly oppose the economic direction of Milei’s precursor, President Alberto Fernández. The administration of Fernandez pursued a vision of government stimulus and social support, including direct intervention in regulating commodity prices. After four years in office with little economic growth and sustained rampant inflation, the Argentinian people elected an outsider who captured the public spectacle with his extraordinary campaign stops and promises of radical change. Milei embraced populist fervour and attacked the progressive Western world on his journey towards the presidency.
As Milei attempts to stabilize the economy of Argentina, he has initiated a series of shock measures focused on fiscal austerity to reduce the governmental debt and rein in inflation to a manageable level. Through radical reform of the government balance sheet, Milei has created a surplus at the expense of critical funding for state-supported sectors, primarily healthcare and education. The incumbent administration has also ended government regulation of essential commodities and devalued the Argentinian peso by 100%.
These measures have had a profound domestic impact in Argentina, with annualized inflation soaring to 209% as of September 2024 and a prolonged recession due to the retraction of government stimulus pushing poverty rates to around 53%. Despite these challenges, Milei’s government has managed to maintain relative popular support for this severe austerity until the summer of 2024, with opinion starting to turn domestically. Milei’s next steps are critical to his political future. International forums and organizations have primarily embraced the reforms launched by Milei, with International Monetary Fund Managing Director Kristalina Georgieva recently praising the government’s reforms: "The new administration is taking bold actions to restore macroeconomic stability and begin to address long-standing impediments to growth," The World Economic Forum continues to provide policy support, hosting the Country Strategy Meeting-Argentina, in Buenos Aires on the 22-23 of October 2024.
The economic future of Argentina is uncertain; after nearly a year in office, Milei has failed to provide promised relief to the people of Argentina. With continued economic hardship, the short-term pain championed by Milei has become an enduring sensation. With public opinion turning against the president, questions are arising around the longevity of a Milei government. If the economy does not rebound before his first anniversary in office, can Milei continue to defend his vision of fiscal responsibility to the Argentinian people? The future of Argentina’s economy hangs in the balance, with the survival of Milei’s reforms and government dependent upon a visible improvement in the lives of the Argentinian population.