Javier Milei swept to power in Argentina a year ago on a ticket to tackle chronic hyperinflation and overhaul the long-suffering economy. In one regard — slashing the size of the state — he has proven so successful that Donald Trump’s government efficiency tsars want to replicate his approach.
Under the chainsaw-wielding libertarian economist, the government has posted rare consecutive monthly budget surpluses and inflation has fallen sharply — “better-than-expected results,” according to the International Monetary Fund.
During a meeting with Milei at the Mar-a-Lago resort in Florida last month, Trump said Milei had done “a fantastic job” as president.
Investors have also cheered the changes in Argentina: Its flagship Merval stock index, which tracks around two dozen of the country’s most valuable listed companies, has soared almost 140% this year.
But the budget cuts have come at a cost to ordinary Argentines. The poverty rate has jumped above 50% from an already high level, the economy, the third largest in Latin America, has slid even deeper into recession and unemployment is on the rise.
Natalia Burone, who provides free meals to 80 families in a town on the outskirts of Buenos Aires, told CNN that demand has risen substantially. “There is growing desperation because people have nothing to eat, and I can’t take in anyone else because we have no more capacity.”
The International Monetary Fund sees Argentina’s gross domestic product shrinking by 3.5% this year, following a 1.6% contraction last year. Projected growth of 5% next year will, in simple terms, just about reverse those declines.
Homeless people at the gates of the closed Retiro train station during a general strike on May 9, 2024, in Buenos Aires. - Lucas Aguayo/Getty Images/File
“If you look at inflation and the fiscal situation, that has been a huge and remarkable success,” said Hans-Dieter Holtzmann, the Buenos Aires-based project director for Argentina, Brazil, Paraguay and Uruguay at the Friedrich Naumann Foundation for Freedom, a liberal German think tank.
“(But) the country is still in a recession, and it’s actually in a deeper recession as a result of budget cuts,” he told CNN.
Milei — who likes to brandish a chainsaw to symbolize budget cuts — has slashed the number of government ministries to eight from 18 and laid off more than 30,000 government employees so far. He has also scrapped energy and transport subsidies, halted virtually all public infrastructure projects, ended most subsidies to local governments and frozen public sector wages and pensions.
For example, in November 2023, a bus ticket in Buenos Aires cost only around 70 pesos (7 cents) thanks to subsidies, a price too low to cover running costs, let alone investment in transport infrastructure. Public transport prices have since increased tenfold, Holtzmann noted, making a daily bus ride unaffordable for many Argentines.
Many of these cuts were necessary to rein in a bloated, inefficient and spendthrift state. But the adjustment has proved painful in a country where roughly every 10th person is employed in the public sector.
Yet, despite the harsh consequences of his policies, polling shows sustained public support for Milei.
Milei “said that things would get worse before they got better, and only now we’re seeing they are getting better… so people trust him,” said Matteo Maffia, a 33-year-old communications consultant from the outskirts of Buenos Aires.
Slower price rises have been a welcome change for a population that has suffered hyperinflation for years. Month-on-month inflation eased to 2.7% in October, from 25.5% when Milei took office last December. Compared with a year earlier, prices rose 193% in October, much less than the annual inflation rate of 211% recorded in December 2023.
“(Before Milei), as soon as you got paid for a job, you’d try to buy as much as possible, because the peso was losing value almost every hour,” Maffia told CNN. “Now, I sometimes go to the shops, and I’m surprised the prices are remaining the same… It feels completely new.”
This newfound stability is benefitting Maffia’s work too, with clients committing to longer-term contracts. “People are planning, they are considering what investments to make, whereas before you basically just worked day-to-day.”
Peso still overvalued
Alongside efforts to repair public finances, Milei — a self-described anarcho-capitalist, who advocates for minimizing the size of the state — has slashed red tape.
Speaking on a podcast last month, he said his deregulation ministry eliminates between one and five regulations a day.
He added that Elon Musk, the co-chair of Trump’s new Department of Government Efficiency, which aims to cut “wasteful” expenditure and “excess” regulations, is a fan of his “chainsaw approach” to government bureaucracy and wants to copy the model over to the United States.
That would align Musk with his co-chair Vivek Ramaswamy, who wrote last month on X: “A reasonable formula to fix the US government: Milei-style cuts, on steroids.”
US President-elect Donald Trump shakes hands with Milei at the America First Policy Institute gala at Mar-a-Lago in Palm Beach, Florida, in November 2024. - Carlos Barria/Reuters/File
Milei has also been working to attract more business investment, crucial to boosting economic growth.
As much as $50 billion in foreign investment could flow into Argentina as a result of a new law that offers incentives to invest, including generous tax breaks, according to the Argentine government’s estimates quoted by KNG Securities, a financial firm.
But capital controls, which limit the flow of foreign currency into and out of the country, are giving investors pause.
The government also continues to set the exchange rate: Having shelved Milei’s campaign pledge to dollarize the economy, it devalued the peso by 54% against the US dollar last December and then by another 2% each month since. Despite this, the currency is still overvalued, according to economists.
“One of the key underlying issues of Argentina’s woes (is) the overvalued peso, which is eroding Argentina’s external competitiveness,” Kimberley Sperrfechter, emerging markets economist at consultancy Capital Economics, wrote in a recent note. A weaker peso would make the country’s exports more attractive to foreign buyers.
“Absent a weaker currency, it’s hard to see Argentina’s economy returning to growth on a sustained basis while maintaining the progress in terms of fixing (public) balance sheets that’s been achieved so far.”
A volatile personality
Many foreign investors are waiting for further evidence of Argentina’s economic turnaround before making long-term commitments. On that front, Milei’s volatile temperament could undermine his ability to push further reforms through Congress, where his party does not have a majority in either chamber.
Milei frequently attacks politicians at home and abroad who he regards as supporting a “socialist agenda.” And on a recent visit to Spain, he called the Spanish prime minister’s wife “corrupt.”
Milei has also previously called Brazil’s President Luiz Inacio Lula da Silva an “angry communist,” damaging the chances of closer ties with an important trading partner and South America’s biggest economy.
“Foreign companies considering Argentina as an attractive location for investment are irritated by Milei’s constant diplomatic skirmishes,” Holtzmann of the Friedrich Naumann Foundation said in a recent note.
From left: Milei, Uruguay's President Luis Lacalle Pou, European Commission President Ursula von der Leyen, Brazil's President Luiz Inacio Lula da Silva and Paraguay's President Santiago Pena at the Mercosur Summit in Montevideo on December 6, 2024. - Eitan Abramovich/AFP/Getty Images
But a blockbuster free trade agreement with the European Union — reached Friday between the bloc and Argentina, Brazil, Paraguay, Uruguay and Bolivia — could improve Argentina’s relations with its neighbors and Europe, helping the economy.
And on Tuesday, during a televised address to commemorate his first year in office, Milei said his government would seek a free trade agreement with the US next year, although the prospects of that appear dim.
At least for now, most Argentines seem willing to give Milei the benefit of the doubt.
“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,” said Flor Maffia, a retired school teacher. “There’s a new wind (of hope) in Argentina.”
Likewise, Diego Fenoglio, an entrepreneur and founder of Rapanui, a chain of ice cream bars in the country, says Milei’s government is on the right track.
“There’s still so much to do but, if they continue working as they are, this country will be unrecognizable in five to eight years compared with where it was just a year or so ago.”
Mauricio Torres in Mexico City contributed reporting.
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