How Milei’s Radical Reforms Turned Argentina’s Economy Around

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On his first anniversary as president of Argentina, Javier Milei announced the initial results of his relentless campaign to cut government spending, eliminate regulations, and pare back the country’s administrative state.

“Today, with pride and hope, I can tell you that we have passed the test of fire,” Milei told Argentinians last week. “We are leaving the desert, the recession is over, and the country has finally begun to grow.”

When Milei took office in November 2023, Argentina, once one of the world’s 10 richest countries, was in a dysfunctional state. Having defaulted on its sovereign debt three times since 2001, it was on track to do it again.

Its annual inflation rate was approaching 200 percent, its poverty rate was above 40 percent, its growth rate was negative 1.6 percent, its fiscal deficit was 15 percent of GDP, and it was running a chronic trade deficit.

Argentinians wanted change and voted the self-proclaimed libertarian into office with the largest majority a presidential candidate has received since free elections were reinstated in 1983, taking 55.7 percent of the vote over his opponent, incumbent economy minister Sergio Massa, who received 44.3 percent.

Over the past year, Milei eliminated 10 of Argentina’s 18 government ministries, capped the salaries of top bureaucrats, and fired 34,000 public employees, cutting government spending by 30 percent.

After the U.S. election in November, Milei was the first foreign leader to meet with Trump, and members of the incoming Trump administration are tracking Milei’s progress.

By the end of his first year, that had climbed to 672 regulatory reforms enacted, along with the elimination of 331 regulations and modification of 341 others.

These included actions such as eliminating import licenses and lifting rent controls. These acts ultimately led to a 35 percent reduction in the price of home appliances and a 20 percent reduction in the cost of clothing, the authors write, as well as a sharp increase in available rental apartments in Buenos Aires that brought a significant drop in rent prices.

Dismantling a Centralized System

“When Milei took up residence at the Casa Rosada [presidential offices], he faced a daunting task: dismantling Argentina’s illiberal, fascist economic system—a system that has been built up since the 1930s and one in which every activity of individual Argentines is subject to the omnipotent dictates of the state,” said Steve Hanke, professor of economics at the Johns Hopkins University and an adviser to former Argentine President Carlos Menem.

The president’s rhetoric and achievements have “put the idea of free markets back on the lips of the chattering classes,” Hanke told The Epoch Times.

Milei, an economist, author, and former soccer player and rock and roll singer, sometimes campaigned with a chainsaw in hand, pledging to slash government bureaucracy in a country he has said had “embraced socialist ideas for the last 100 years” and was now eager to shake them off.

Argentina’s extensive system of government control earned it a lowly 159th place out of 165 countries on the Fraser Institute’s 2022 Economic Freedom Index, nestled between Iran and Burma, also known as Myanmar. But Milei’s campaign against socialism concerns more than economic freedom.

“Perhaps most important of all, and beyond economics, Mr. Milei has jump-started a cultural shift away from socialist ideals, championing civil society and principles of liberty and personal responsibility,” Peter Earle, an economist at the American Institute for Economic Research, told The Epoch Times.

His presidency echoes predecessors including Britain’s Prime Minister Margaret Thatcher, who in the 1980s introduced a then-radical program of tax cuts, privatization, and deregulation, while reforming the country’s trade unions and health and education systems.

With its sense of urgency, it is also reminiscent of many of the former Soviet countries in Europe, which rushed to get market-based, democratic structures in place while they dismantled sclerotic, centrally controlled systems.

Devaluing but Keeping the Peso

Milei’s administration also devalued the peso by half to bring its official exchange rate inline with market exchange rates, halted government infrastructure projects, and cut fuel subsidies.

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“Milei’s Achilles’ heel will be the peso,” Hanke said. “Milei won the election because he promised to mothball the central bank and the peso.”

He has failed to do so, while also leaving capital controls in place, Hanke said.

“If Milei would have dollarized as he promised to do ‘on day one,’ inflation would now be dead as a doornail and capital controls would be history,” he said.

Milei has also worked to reorient Argentina’s economy, which he deemed unbalanced with too much of its GDP coming from government spending and personal consumption, and too little from private investment and exports.

Emerging From Painful Transition

Changes of this magnitude are often painful, as Milei warned they would be. But signs indicating better days ahead are also emerging.

Personal consumption rates appear to have fallen as Argentines, like many Americans, continue to struggle to make ends meet. Beef consumption in Argentina, a country famous for its beef, fell during the first six months of this year to its lowest level in 13 years.

Argentina’s poverty rate increased from 42 percent to 53 percent during Milei’s first six months, the country’s highest level since 2003. It is now trending down, falling to 49 percent in December.

Inflation shot up to 280 percent in April, according to Statista, largely due to the devaluation of the peso. The monthly inflation rate fell from 25 percent a year ago to 2.4 percent as of December, with both government and trade balances shifting from deficit to surplus.

Government spending has been cut by almost a third.

In November, Argentina announced its ninth consecutive month of government budget surpluses. And with inflation below 3 percent per month, Argentina’s central bank cut interest rates from more than 100 percent a year ago to 36 percent as of the end of November.

In September, Argentina’s rate of wage growth, which was 4.7 percent, exceeded the inflation rate for the first time in years, according to Trading Economics.

Still, 35 percent said they continue to struggle to afford food, and 69 percent said they struggle to find work.

Lessons for Trump Admin

Earle said if the Trump administration wants to take a leaf out of Milei’s book, it has to hit the ground running “given the lag times in economic policies.”

“In view of the rapidity with which he has built his Cabinet and begun drawing plans up, it’s quite clear that President Trump has every intention of starting to tear away constricting regulations and wasteful spending on his first day in office,” Earle said.

He said the Trump administration must also be willing to consider cuts in areas such as the military, education, Social Security, and Medicare, and be “immune to the criticism” that will inevitably follow.

The United States is not experiencing many of the crises that Argentina has faced, but many economists predict dire consequences if federal spending continues at the current pace.

America has run up more than $8 trillion in federal deficits between 2020 and 2023, and the national debt, which exceeded $36 trillion, is costing Americans $1.8 billion in interest payments per day.

In his first term, Trump cut taxes and approved trillions in new government spending, to which President Joe Biden added more trillions.

“If there are tax cuts but no spending cuts, deficits will widen,” Earle said. “The administration and its policies may lose credibility if—after being elected on the basis of being better on economic issues—U.S. debt and deficits, as well as inflation, worsen.”

And Trump may not be as dedicated to free markets as Milei.

While Milei liberalized trade, bringing the cost of many imported essentials down, Trump has threatened numerous tariffs—which some said would lead to higher prices—with the goal of protecting U.S. industries.

Reuters contributed to this report.