Argentina was once one of the wealthiest nations in the world, richer than France or Germany. Much of its prosperity was based on beef exports. Today, however, many Argentinians can no longer afford beef and have turned to chicken as a cheaper alternative.
In November 2023, Javier Milei was elected President of Argentina with 56 percent of the vote. By December, he succeeded Peronist Alberto Fernández, inheriting an economy plagued by 211 percent inflation, a shrinking GDP, and a poverty rate affecting at least 45 percent of the population.
Milei faced harsh criticism from international media, who predicted that his policies would spell disaster. The main debate was whether to grade him a one or a two out of ten. However, perceptions have started to shift, partly because Argentina’s stock market has emerged as the best performer of 2024.
A far-right libertarian with an eccentric hairstyle, Milei famously waved a chainsaw during his campaign to underscore his commitment to cutting costs. He has proposed unorthodox solutions for a bankrupt nation, which still owes 44 billion dollar to the IMF.
Halving Ministries and tackling inflation
Milei is a staunch believer in free markets and envisions a minimal government, akin to a «night-watchman state» that interferes as little as possible in citizens› lives. He wasted no time halving the number of ministries and the Argentine peso. His top priority is combating hyperinflation. Initially, it seemed he would have to act by decree since his party, La Libertad Avanza, holds only a few seats in Congress. Yet, by July of last year, he managed to pass a package of reforms through the Argentine legislature. Inflation, once at 25 percent per month, has now dropped to 2.7 percent.
Alongside curbing inflation, Milei has imposed drastic measures under the mantra of «no hay plata» («there is no money»), achieving fiscal discipline for the first time since 2008. Argentina has recorded budget surpluses for several consecutive months. This fiscal responsibility is crucial for renegotiating debt restructuring with the IMF.
Argentina is theoretically wealthy, not just due to its agricultural production benefitting from fertile pampas but also because of its rich reserves of natural resources like natural gas, lithium, and copper. However, the country’s unstable economy has historically deterred investment. Milei introduced a new law establishing binding 30-year agreements on tax contributions in specific sectors, attracting more foreign interest. He also liberalised the rental market, which doubled housing supply practically overnight, and reduced energy subsidies.
Rising unemployment
These measures have not yet translated into economic growth, but they have established the groundwork for recovery. While the economy likely contracted by 4 percent last year, this was a necessary step to control inflation. Hyperinflation is no longer the top concern; rising unemployment has taken its place. Official unemployment stands at 8 percent, but given that 45 percent of the workforce operates in the informal sector, the figure is less meaningful. Social security is virtually non-existent in Argentina. While there were 3.5 million public sector employees (out of a population of 47 million), that number is rapidly declining. Despite these challenges, Milei retains significant support, a reflection of how poorly his predecessors performed.
A year ago, few believed Milei could rein in inflation and balance the budget. Yet Argentina, long considered the «sick man» of Latin America, has begun to transform its image into a model for the region. With the fundamentals now in place, the country can focus on growth. Nations such as Brazil, Chile, Colombia, and Mexico, which criticised Milei’s approach a year ago, are now under pressure to implement similar reforms. Milei is also set to receive full support from Donald Trump, as both leaders advocate supply-side economics: low taxes, deregulation, and free markets.
Milei’s success could inspire other struggling nations to follow suit. Trump, for instance, appears to be embracing monetary discipline in line with supply-side economics by appointing Scott Bessent to his team. Milei has even been suggested as a figure who could bring reform to Europe, with France as a potential starting point. His achievements have rendered obsolete the long-running joke about solving Japan’s national debt by hiring an Argentine central banker to induce inflation.
A shift from Keynesian economics
Milei’s rise reflects a backlash against the «compensation economy» that emerged during the pandemic, where policymakers sought Keynesian solutions to every problem by stimulating demand. Increasingly, governments are viewed as ATMs and problem-solvers of last resort.
Whether for individuals or businesses, the response has been to throw more money at issues, expanding the state’s role in the economy. This approach hinders long-term growth and risks severe societal disruption. Many nations could benefit from adopting the principle of «no hay plata».
Han Dieperink is Chief Investment Officer at Auréus Vermogensbeheer and previously served as CIO at Rabobank and Schretlen & Co.