Argentina after a year of Milei Presidency

Author: Sara Galetta - Senior Researcher

Abstract

In November 2023, Javier Milei assumed the presidency of Argentina. The country was in the middle of an economic crisis characterised by soaring inflation, high poverty rates, and a history of fiscal mismanagement. His election, driven by widespread dissatisfaction with traditional political elites, marked a dramatic shift toward far-right economic policies, with a focus on austerity and market-driven reforms. This analysis evaluates the first year of Milei’s presidency, highlighting his economic and social reforms. On the economic front, his government has implemented significant fiscal cuts, including reducing public spending by nearly 8% and pursuing aggressive monetary policies to stabilise inflation and improve the fiscal deficit. While inflation has decreased from 292% to 166% by November 2024, poverty remains alarmingly high, reaching 53%, exacerbated by deep cuts to social programs, public health, and education. The analysis also examines the social costs of Milei’s austerity measures, particularly their impact on the most vulnerable parts of the population, and the challenges faced by the government in addressing inequality and sustaining economic growth. Despite improvements in macroeconomic indicators, Argentina is still facing long-term challenges, such as entrenched poverty and inequality.

Introduction

In November 2023 the second round of the presidential elections in Argentina elected Javier Milei as the new President of the Republic of Argentina. Since 2015 Argentina has been characterised by an intense ideological debate between the Peronist centre-left and the anti-Peronist centre-right. The election results upset the electoral competition between the two coalitions with the unexpected victory of a candidate from a far-right party, “la Libertad Avanzada”. He has represented the deep political dissatisfaction of the country, given that he came to power at a time of deep economic crisis. This has been the motive for promoting radical anti-state positions, with a strong criticism of the political elite.
After one year, Milei has achieved important macroeconomic results, having fulfilled some of his promises. But these reforms have raised some important social questions.

The economic situation at the start of Milei’s presidency

Figure 1:Argentina’s inflation rate, from November 2023 to November 2024.
Source: Instituto Nacional de Estadística y Censos (INDEC)

The country’s dramatic economic crisis was caused by years of previous governments printing money and fuelling inflation to finance the public spending.

In December 2023, inflation in Argentina reached 211.4%. In fact, during the first months of Milei’s presidency, the economic crisis worsened and inflation continued to rise. In addition, the poverty rate rose by 11 points to 53% in early 2024.
Fiscal deficits and chronic inflation have persisted in Argentina over the past decades, and governments have defaulted on public debt nine times. Since 2009, the country has been running fiscal deficits and the deficit reached 4.4% of GDP in 2023, along with a 10.4% drop in per capita income. The depreciation of the peso and pressure on the official exchange rate led to a policy of price and capital controls. However, these policies only delayed the negative effects, as they aggravated the whole situation with price distortions, widened the gap between the official and informal market exchange rates and led to a deterioration in the central bank’s balance sheet. The manipulation of exchange rates distorted trade flows, in particular causing exporters to make mistakes in their exports ahead of new devaluations. In addition, investment has grown by 1.1% between 2011 and 2023. Although the Argentine economy has always had the potential to prosper thanks to the sources of sustainable growth, high tech activities in agriculture, oil and gas, the severe economic crisis of recent decades has undermined this potential.

The economic stagnation was so evident at the time of his inauguration, that President Milei’s priorities were to eradicate inflation and reignite economic growth.

The reforms of the new presidency

From the outset, the President’s strategy has been to implement a fiscal and monetary reform in order to stabilise the Argentine economy. Fiscally, the government’s priority has been to eliminate the large fiscal deficit, with the goal of reducing the deficit by 5 percentage points of GDP by 2024. The way to do this has been to reduce public spending: for example, cutting pensions by 36%, reducing economic subsidies to companies, and so on. As Figure 2 shows, there has been an evident decrease in the public expenditure from 2023 to 2024. From the second quarter of 2023 to the third quarter of 2024, the public expenditure has reduced by almost 8%.

Figure 2: Argentina’s government expenditure.
Source: Instituto Nacional de Estadística y Censos (INDEC).

On the monetary front, the Central Bank has tackled the oversupply of pesos and the reforms have helped to eliminate all monetary financing of the government thanks to fiscal surpluses. Three days into Milei’s presidency, the central bank devalued the peso by 50% to address the overvalued exchange rate. This reduced the central bank’s monetary and interest liabilities. Subsequently, nominal interest rates were cut by 50% annually to slow the accumulation of new liabilities. In addition, to address the lack of reserves to pay off inherited debts to importers, the central bank introduced BOPREAL bonds, which deferred payments and increased dollar-denominated liabilities to $9 billion (4.3% of total assets). In addition, government bonds, mostly denominated in pesos, account for 61% of the central bank's assets. In order to strengthen the credibility of monetary policy, the central bank introduced a 2% monthly depreciation of the currency.

These measures quickly produced the expected results, with the spreads falling by more than 700 basis points between 4 December 2023 and 22 April 2024. And monthly inflation fell from 25% in December to 11% in March, as Figure 3 shows. The graph also remarks that monthly inflation has been continuously declining until November 2024.

Figure 3: Argentina’s monthly inflation rate, from November 2023 to November 2024.
Source: Instituto Nacional de Estadística y Censos (INDEC).

Moreover, the central bank has regained a stronger position, allowing it to accumulate international reserves and stabilise the gap between the official and informal exchange rates, thus avoiding a significant devaluation in the future. It can be said that the public accounts have improved and, according to forecasts, GDP should start growing again from 2025.

In the long term, the government’s challenge is to implement reforms that will stimulate investment in the country and ensure the country's economic growth.

The social cost of austerity

The Argentinean president's idea is to reduce the presence of the state to a minimum. Milei’s rhetoric has always been very clear and direct: the famous video in which he “takes off” most of the Argentine ministries suggests that the country could see several cuts in the public sector in the coming years. Since 10th December 2023, the day of his inauguration, the president has dismissed 13 Ministers and about 30,000 public servants. This means that he has already reduced the funding for education, health, scientific research and pensions.

Indeed, the social conditions in the country are not promising. Poverty has increased and is at an all-time high: it reached 52.9% in the first six months of Milei’s presidency, 12 points higher than in the previous semester. This means that one in two Argentines lives in poverty. Moreover, the government has also cut funding for canteens for the poor and welfare programmes. Although incomes have risen, they have not been able to compensate for the rise in the cost of basic goods by reducing their purchasing power. But this reduction has affected the poorest 20% of the population more than the richest 20%.
The direct consequence has also been an increase in inequality too. Resources for childhood have been reduced, even though two out of three children live in poverty conditions. Subsidies managed by social organisations have been abolished, with the accusation that they are “poverty managers”.

Another sector that has been severely affected is public health. Not only have budget cuts in the salaries of public sector hospital workers contributed to impoverishment, but there has also been an increase in the demand for services. Indeed, the increase in prices of private health insurance has forced many Argentines to turn to public assistance.

The education sector, which has become a secretariat rather than a ministry, has seen its funding cut by 50%. There have been many cuts: the government has abolished the National Teacher Incentive Fund, suspended infrastructure interventions in schools and cut student scholarship programs. Public universities have been struggling to pay for heating and electricity, and it was only after a massive national mobilisation of the academic community that the government decided to increase university funding. But the situation is far from being resolved, as professors’ salaries have risen less than the rate of inflation and many are at risk of falling below the poverty line.

Although femicides are a sad reality in the country, the Ministry of Women’s Affairs has been closed, along with the Undersecretariat against Gender Violence. The government has cut several measures to help women in case of danger. This decision also reflects the ideological position of the president, who was the only member state not to sign the document proposed by Brazil on “Gender Equality and the Empowerment of Women”.

Argentina’s persistent challenges

It is clear that Argentina is improving its economic performance. Inflation is still high (166% in November 2024), but certainly much lower than 292% (April 2024). Moreover, the country should have ended the year with a primary surplus in its public budget. In terms of economic stabilisation and inflation reduction, Milei’s government is taking important steps to reduce poverty. The balance of payments at the end of 2024 recorded a growth of 18 billion dollars. The “peso”, the national currency, has appreciated instead of depreciating. In fact, it is one of the currencies that has gained more in 2024. However, it is also clear that there are still many economic and social problems.

At the beginning of his mandate, Milei warned that “there is no money”, and in fact public spending has fallen by 28% in 12 months. Poverty, although now is at almost 53%, has never fallen below 25% in recent decades. According to the World Bank, the four main factors that prevent it from being reduced are: high inflation, which hits most poor families; a large proportion of the population working as self-employed; a higher proportion of public spending on the elderly than on children and young people. Extreme meteorological events also affect the most vulnerable sections of the population.

Other challenges include: fiscal consolidation that does not protect the most vulnerable, and cuts in education and health spending that risk preventing the creation of better human capital. Indeed, the educational situation in Argentina is already worrying, as it is the only country where the percentage of people with a university degree is lower than in the previous generation.

The main challenge for Milei's administration will be to maintain a steady economic growth and increase the living standards of Argentines, but there is still a lot of work to be done.

It is difficult to say what will happen in the future, but it is certain that Milei will continue to minimise the role of the state and to increase the role of the markets through liberalisation, deregulation and privatisation. It is likely that once inflation is more stable, he will begin to reduce taxes, which he says are a “theft” from the state. This will lead to lower government revenues and therefore more cuts in public spending on health, education and investments in infrastructures. The result will be a threat to the potential economic growth and a rise in inequality (Serrao, 2024; Mori, 2024).

Source classification

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