Has Javier Milei succeeded in transforming Argentina's economy?

Javier Milei is the former economics professor and “anarcho-capitalist” who won Argentina’s presidential election last autumn and took power almost a year ago with no prior political experience. A life-long libertarian who swore to take a “chainsaw” to the state, Milei is hailed by some – Elon Musk and Donald Trump among them – as a beacon of pure capitalism and a champion of small government. Others regard him as a crazed far-right populist whose programme of extreme austerity remains all but certain to end in mass civil unrest and create yet more misery for a nation of 46 million people well used to debt crises, bad governance and high levels of poverty.

How has Javier Milei been getting on?

To date, the Milei presidency has proved far smoother than many commentators expected. In office, Milei hasn’t exactly pivoted to the centre, but he has become more pragmatic and presidential. Where once he savaged the Chinese as “assassins”, with whom Argentina should not do business, he now hails his nation’s second-largest trading partner as “truly a super-friendly partner. They have really surprised me.” President Lula of neighbouring Brazil he dismissed as a “corrupt communist”, but relations have thawed somewhat since July, after Brazil stepped in to help when Venezuela expelled Argentina’s diplomats. At home, Milei once denounced all politicians as a “venal caste”. In office, he has worked with the centre-left and centre-right, winning support for his economic agenda in a key Congressional vote in June.

Has he stuck to his programme?

His chainsaw has certainly been busy, says Michael Stott in the Financial Times. Since taking power in December last year, Milei has wiped out “years of hefty government deficits and money printing” with a programme of fierce austerity – halting capital spending, shrinking the government payroll and slashing pensions and state-sector salaries in real terms. Argentina’s public finances recorded a surplus of 0.3% of GDP in the first eight months of this year, compared with a 4.6% deficit at the end of 2023. Milei closed 13 of 22 government departments, sacked as many as 30,000 officials and slashed the federal budget by 32%, one of the most rapid and drastic fiscal adjustments of any country in peacetime.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

What about dollarisation?

Milei campaigned on a pledge to abolish Argentina’s central bank and scrap the national currency in favour of full dollarisation, declaring that the peso was “not worth crap”. In office, he began by devaluing the peso by 50%, and his team talks about plans for Peru-style “currency competition”, in which both dollars and pesos would be legal tender. Milei’s ultimate aim is to lift capital and exchange controls in order to let the peso float freely – it remains overvalued, making the country expensive in dollar terms. In terms of international investor confidence, there are promising signs, says Stott. The gap between the black-market dollar and the official rate – a useful barometer of sentiment – has shrunk to just under 20% in October from 60% in January. “But most foreign investors want to see how durable the Milei experiment proves before opening their chequebooks.” Milei has done a “remarkable job so far of discarding the fiscal baggage that has been weighing Argentina down”, says The Economist. “But mess up the big macroeconomic questions and that will count for little.”

Has Argentina conquered inflation?

It’s falling rapidly. Argentina’s annual inflation rate, at around 200%, remains the highest in the world. But the monthly inflation rate has fallen sharply from 25% in December to around 3.5% now, helping bring interest rates down. The stock market has boomed this year (up roughly 125%) and bonds have bounced, too. And the central bank has added a net $19 billion to its reserves this year. However, the harsh austerity programme has deepened a recession that began in 2023. The IMF predicts the economy will shrink 3.5% in 2024. Unemployment is rising and the number living in poverty has jumped to 53%, the highest for 20 years and a rise of 11 percentage points in a year – meaning 3.4 million more people are now impoverished.

What are Argentina’s economic prospects?

The country has economic strengths. It’s the world’s largest exporter of soya bean oil and meal, the number two exporter of corn and the third biggest exporter of soya beans. It has the world’s third largest lithium reserves, making it a key player in the global energy transition – and also boasts considerable reserves of shale gas, so far largely unexploited. The country remains the IMF’s largest debtor, however, owing $44 billion. The Milei government wants billions of dollars to help lift strict currency and capital controls that are slowing the country’s exit from recession. Milei hopes he has identified a kindred spirit in Donald Trump, who might be able to help make that happen. On the other hand, Trump’s promised tariffs are the opposite of Milei’s market libertarianism, and a surging dollar would add pressure to radically devalue the peso, driving up inflation once again.

Can Javier Milei last?

For now, Milei’s popularity is holding up remarkably well for a president overseeing such harsh austerity. That’s important, because his nascent political movement has few seats in Congress, his presidency is reliant on coalition-building with mainstream parties and protesters have sporadically taken to the streets. One difficulty will be the legal fights with creditors winding their way through courts in the US and Europe. “Unfortunately for Milei, a tsunami of judgments that has been building for two decades is now breaking, with final rulings in all the [major] cases due in his four-year term,” says Sebastián Maril of consultancy Latam Advisors. Maril estimates that adverse judgments could cost Argentina about £31 billion without interest. It’s been a fairly smooth ride so far for Milei, but it may become a lot bumpier.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.