By André de Botton
Argentina is at a crossroads. Ever since its libertarian President, Javier Milei, was elected in December 2023, markets and Argentineans alike have had difficulty foreseeing the impacts of his radical political and economic reforms. Supporters point towards his impressive tackling of hyperinflation, which fell from a high of 25.2% in December 2023 to 3.9% in August, whilst his opposition is quick to point to the substantial uptick in poverty, which now stands at 52.9% of the population, versus 41.7% a year ago. With growing polarization around the outcomes of Milei´s economic policies, it begs the question of whether Argentina is undergoing necessary austerity, or is spiralling deeper into crisis.
Simon Kuznets, Nobel Prize-winning economist, famously exclaimed that “there are four types of countries: developed, undeveloped, Japan and Argentina”. Plagued by government mismanagement coupled with state-centric policies, Argentina’s economy over the twentieth century has gradually gone from having a GDP per capita amongst the ten highest in the world in the 1920s, to now being ranked seventieth. What Kuznets recognized is that the volatility inherent to Argentina´s economy and subsequently, its government, is a strong indicator of the difficulty of bringing about sustainable economic prosperity through conventional reforms. The libertarian extremism underpinning Milei´s policies highlight exactly the drastic changes that Argentinians believe need to be made after years of sluggish economic growth and triple-digit annual inflation.
The Argentine President’s unconventional rise to power was as unexpected as his continued hold on it. When Milei first entered the presidential race as an anti-establishment congressman known for his less than-presidential eccentric behaviour – including wielding chainsaws in rallies, calling Pope Francis “a leftist hero,” and asking his deceased, and later cloned, dogs for political advice — few believed he stood a real chance against the established pro-business ticket of Patricia Bullrich and the Peronist left-wing incumbent ticket of Sergio Massa. Yet, in a display of the greater population´s frustration with the political class, especially the ruling Peronist Justicialist party, rather than Milei´s specific political program, Argentina overwhelmingly believed in and voted for Milei.
Since becoming president, Milei’s economic strategy has been to radically bolster Argentina´s liberal market economy, to reduce the government´s size, and to cut regulatory red tape. In his first months in office, he devalued the Argentine peso by 50%, slashed industry and energy subsidies, and laid off tens of thousands of public sector employees. The shock therapy successfully tackled the country’s ballooning debt, soaring inflation, and chronic fiscal deficit, problems that have plagued Argentina for decades. This was met with both the public´s and financial markets' praise, a hard combination in Argentinian politics as unionized workers prerogative tend to directly clash with market expectations of financial health. For instance, citizens cheered the political change in the low-income neighbourhood of La Boca even as the Buenos Aires stock market rose by 20% on the first day following Milei´s election.
Fast forward ten months and the consequences have been dire, especially to the low-income households that elected Milei in the first place. According to UCA´s observatory, one in five Argentinians are now living in extreme poverty. Unemployment rates have also spiked, leading many to wonder if Milei’s reforms are exacerbating the country’s social and economic woes rather than alleviating them. Critics have labelled his approach as reckless and unsustainable, warning that Argentina could be headed for a full-scale collapse if drastic corrections are not made.
Nevertheless, Milei remains defiant, insisting that his policies are the only way to rescue Argentina from itself. In a speech in May, the president pointed to signs of progress: inflation, though still high, has begun to slow down, and, for the first time since 2008, Argentina posted a quarterly budget surplus in April. For Milei and his supporters, these achievements prove that the country is on the right track, even if the journey is arduous. This speech has been uttered by many right-leaning presidents before Milei, most recently by Mauricio Macri in 2019, but what differentiates the speech this time is the thunderous applause it is met with by a plurality of stakeholders in the economy. Voters, at least for now, have bought into Milei's speech that his economic austerity measures are a necessary evil in the short term, to enable sustainable growth in the long term.
Milei’s approval ratings stand at an astonishing 52%, but are increasingly showing signs of faltering, as his economic status yields negative consequences for the most impoverished of society. If the public finances have improved, one could say it was at the expense of the Argentinian household budgets. The slashing of energy subsidies led to a 55% real increase in electricity bills and a 177% real increase in gas bills, directly pushing entire households into poverty.
Demonstrations against his government, particularly from the powerful CGT labour union, have become progressively violent, as the opposition desperately tries to mobilize against his draconian budget cuts, and more recently, changes to labour laws which make it easier to fire employees. For many Argentinians, the promise of future stability is not worth the hardships they face now. Yet, Milei’s supporters argue that these are the necessary growing pains of a commodities-oriented country that has for too long lived beyond its means.
At the centre of this political and economic upheaving lies a fundamental question: What kind of future does Argentina want? As Milei approaches the halfway mark of his first term, the future of Argentina under his leadership remains uncertain. His government’s ability to pass meaningful reforms has been hampered by Congress, where opposition parties that hold a majority have blocked much of his proposed, more extreme, legislation. And while Milei’s economic policies have garnered praise from institutions like the IMF, with them even granting Argentina a loan for the twenty-third time, their success ultimately hinges on whether the Argentine public can endure the prolonged austerity.
In a pro-government rally in July, Milei insisted that “everything that can be cut, will be cut,” as his “chainsaw never stops”. Now, it has become quite clear that if these cuts in employment and energy subsidies rage on, the chainsaws of his electorate will be the ones running out of power – not his own.
Image: Flickr
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