One Year of Milei: Stabilization, A Balanced Budget and Deregulation in Argentina

By Marcus Falcone of EconLog.

"Today marks exactly one year since Javier Milei rose to the presidency in Argentina. Expectations were high among libertarians, as this was the first time a self-described ‘anarcho-capitalist’ was elected to the highest office anywhere in the world. During his first year, Argentina has certainly experienced change. The country is no anarcho-capitalist paradise, but is certainly more deregulated and has a more austere government than in the past.

Indeed, the vehemence with which Argentina has balanced its budget was unexpected. Milei inherited a deficit of 5% of GDP but achieved a financial surplus in the first quarter of his administration, and has maintained it ever since. Spending cuts have mostly targeted pensioners and public employees, which has caused some to question their sustainability. But in a country whose budget was unbalanced in 113 out of the last 123 years, balancing the budget so quickly is by far Milei’s biggest achievement.

The sudden halt of money-printing and the expectation that Argentina will stay on its current fiscal course have caused the peso to appreciate (after many years of depreciation) and inflation to plunge. The monthly inflation rate for December of last year was 25%, yet the latest available figure was 2.7% in October. While the government aims for much lower inflation in the future, this is the lowest monthly value since November 2021. Throughout 2023, Argentina had the highest inflation rate in the world, at 211%, the highest since the country’s 1989-1990 hyperinflation. All of this seems like history now. The country has stabilized.

At the same time, Milei has set up a new Ministry for Deregulation tasked with deregulating Argentina’s economy as much as possible. Through the use of executive orders and extraordinary faculties delegated by Congress, the government has already implemented several measures that introduce competition in formerly closed markets. Examples range from rent decontrol, which has caused the supply of available apartments to nearly triple and real prices to drop by as much as 40%, to the authorization of new satellite internet companies, the arrival of which is expected to revolutionize agriculture through an increased use of technology. Argentina currently ranks 148th in regulation according to the Fraser Institute’s Economic Freedom of the World Index.

So what about everything that is not economic policy? Argentina’s first libertarian president has not made significant changes in terms of personal liberties, though the country already ranks relatively high in that area according to the Cato Institute’s Human Freedom Index. If anything, state-run media companies have stopped airing left-wing propaganda and the Milei administration has closed its anti-discrimination agency, citing its misuse for political purposes.

Of course, a myriad of challenges remain for Milei. Currency controls are still active and it is unlikely that Argentina will receive large investments as long as they are in place, although the government has started offering benefits for projects over $200 million. Argentina is also still a long way from liberalizing trade, even though Milei has lowered some tariffs. So far, no state-owned companies have been privatized, and taxes remain as high as they were when Milei took office. But the government is aware of all these challenges and is likely to attempt reform at some point, perhaps after the 2025 midterms. Without these reforms, it will be hard to reduce poverty, which is currently at 53%, consistently.

Despite implementing what is perhaps the largest fiscal adjustment ever made in Argentina, Milei is not only still popular, but is seemingly growing more popular as time goes by. According to the latest poll by Universidad de San Andrés, 54% of Argentines view him favorably. He is also trusted by markets, which is why Argentina’s sovereign risk premium went down almost by two thirds during 2024 to its lowest in five years. 

Ironically, many expected Milei to last in power for only a few months, even weeks. Sergio Massa, his main opponent in the 2023 presidential race, was so confident that Milei would fail that he wrote a book to vindicate himself which he planned to present in March. However, its release has been postponed month after month as Milei popularity endures. If things continue as they are now, that book may never see the light of day."