In December 2023, Javier Milei won the elections in Argentina, after an electoral period of high political polarisation, which in the second round pitted Sergio Massa, candidate of the Unión por la Patria coalition, against Javier Milei, candidate of the La Libertad Avanza coalition. Milei, a right-wing libertarian economist, was elected on the basis of an electoral programme centred on drastic economic reforms, and also stood out for his criticism of the traditional economic model.
His governance project, based on principles of economic liberalism (including the dollarisation of the economy) and a reduction in the size of the state, aims to profoundly transform Argentina’s economy and solve chronic problems such as high inflation, a growing public debt and a recurring budget deficit.
It’s important to remember that since its independence in 1816, Argentina has defaulted nine times, making it the country in the world with the most bankruptcies. For several years now, Argentina has been facing a series of economic, political and social challenges, both domestically and internationally.
On the economic front, the country was facing one of the highest inflation rates in the world, difficulties in honouring its commitments to international creditors, including the International Monetary Fund (IMF), constant devaluations of its currency (the Argentine Peso) – leading to an increase in the use of dollars on the informal market – and unemployment was a significant problem, especially among young people.
In the social-political sphere, the previous government faced difficulties in implementing effective policies and resolving economic problems, while political divisions – between those in favour of state intervention models and those in favour of liberal policies – generated social tensions, culminating in a growing distrust of state institutions among the population, reflected in the occurrence of growing protests against corruption, increasing bureaucracy and the role of the state. In the international context, the country was isolated in terms of foreign investment due to economic instability and a lack of confidence in the government. Trade relations were concentrated in a few partners, such as China and Brazil, but without much progress in strategic agreements.
Although economic reforms are seen as a necessary step towards macroeconomic stabilisation, the impact of austerity policies has exacerbated the social crisis
Since Milei took office as President of Argentina, the country has undergone significant economic changes. The adoption of austerity policies centred on reducing public spending has made it possible to record the first budget surplus in 14 years. On the other hand, annual inflation slowed from 211.4% to 117.8% between December 2023 and December 2024, after reaching a peak of 292.2% in April.
Argentina’s trade balance accumulated surpluses in every month of 2024, and public debt has been falling, from 155.4 per cent of GDP in December 2023 to 111.7 per cent of GDP in December 2024, as a result of the peso’s appreciation, which has an impact on external debt.
The country’s risk perception has also improved significantly, with the reduction in inflation and the implementation of austerity policies, as well as the resumption of negotiations with the IMF and discussions around the dollarisation of the economy. These negotiations, which are aimed at obtaining financial support, have signalled to the market that the government is committed to strengthening international reserves and avoiding a currency crisis.
Although still controversial and not fully implemented, the promise to dollarise the Argentine economy – one of Milei’s main proposals – has attracted the positive attention of investors, who see this measure as a possibility of greater monetary stability in the future. The country’s sovereign debt risk index has consistently fallen as fears of default have diminished. The appreciation of Argentina’s Treasury Bonds maturing on 9 July 2035, with a coupon of 4.125%, is a reflection of this recovery. This issue, considered the most representative with a 10-year maturity, has almost tripled in value since October 2023, going from around 24 cents on the dollar to around 64 cents on the dollar in November 2024.
However, not all the news is positive. According to data published by the National Statistics and Census Institute (INDEC), GDP contracted throughout 2024, falling by 2.1 per cent year-on-year in the third quarter of 2024, worsening the rate of decline compared to the 1.7 per cent reduction in the previous quarter. This was the sixth consecutive quarter of contraction, driven by a marked slowdown in the agricultural sector (-13.2 per cent against 80.2 per cent in the second quarter), as the effects of recovery from a historic drought began to fade. On the other hand, falls in industrial production (-5.9 per cent vs. -17.4 per cent), construction (-14.9 per cent vs. -22.2 per cent), wholesale and retail trade and repairs (-6.1 per cent vs. -15.7 per cent) and financial intermediation (-1.8 per cent vs. -9.8 per cent) slowed down. It is currently estimated that around 40 per cent of the Argentine population lives below the poverty line, which is one of the most negative effects of implementing austerity policies.
Javier Milei has imposed significant economic changes in Argentina
Although economic reforms are seen as a necessary step towards macroeconomic stabilisation, the impact of austerity policies has exacerbated the social crisis. However, the government and analysts anticipate a gradual recovery in GDP from 2025 onwards, driven by greater political-economic stability, a more favourable environment for foreign investment and the continued implementation of reforms in the public sector.
Sectors such as agribusiness, energy – especially Vaca Muerta, one of the largest shale oil and gas reserves in the world – and exports could lead the recovery of economic growth in Argentina. The IMF estimates that the country will see an economic contraction of 3.5 per cent in 2024, followed by recoveries of 5.0 per cent and 4.5 per cent in 2025 and 2026 respectively. Some parallels can be drawn with Mozambique, which recently went through its biggest political and social crisis since the end of the civil war. In addition to a growing public debt problem and a deficit budget, the country has problems associated with high levels of corruption, social inequality and unemployment and insecurity.
President Chapo, in his inaugural speech on 15 January, promised to make structural changes in order to solve some of these problems, namely reducing the size of the government, limiting superfluous public spending such as travel, reviewing civil servants’ benefits and the possibility of privatising companies and assets.
These measures show a clear intention to reduce public spending, with a view to improving the financial health of the state’s accounts and achieving the trust of creditors and international partners. However, the adoption of more severe austerity measures could face social protest in a country that has some of the highest levels of poverty in the world.
