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Argentina: Will Milei’s Gamble Pay Off?
President Milei is taking Argentina down a path of radical economic change.
BY TULIO VERA AND
JUAN DIEGO SOLIS
Global Americans
Argentina possesses one of Latin America’s largest economies, considerable natural resources, and is a global heavyweight in agricultural exports. It also has prodigious amounts of mineral wealth, including lithium, a substance critical to the global energy transition and tackling climate change. Despite all the positive factors, this country of roughly 46 million people has an unenviable track record of severe economic downturns, massive debt defaults, and radical policy turnarounds. In 2023, Javier Milei, a self-described “anarcho-capitalist” surprised Argentina’s political establishment and won the presidency. Now sitting in the Casa Rosada, Milei is again taking Argentina down a path of radical economic change. Will Milei’s gamble of remaking Argentina pay off?
1. Why did Javier Milei come to power? What drove 56 percent of Argentine voters to vote in favor of a relatively unknown libertarian candidate from the far-right?
For decades, Argentina has been living beyond its means while drawing down on its past wealth. The cliché about the country once being among the richest nations in the world is true, but only up to the 1940s and 1950s and the advent of Juan Domingo Peron. For the past 75 years, Argentina has operated under a populist, corporativist, rent-seeking economic model, and essentially lived from the flow of rent generated by a diminishing stock of wealth. This economic dynamic has obvious limitations and societal frustration with the economic model appears to have peaked with the elections of 2023.
Frustrated by the lack of economic opportunities, rising poverty levels, and the chronic mismanagement of the economy, voters – particularly younger ones – accorded Javier Milei a landslide victory in the second round of presidential elections in November 2023. Milei received 55.7 percent of the vote, versus his Peronist rival Sergio Massa’s 44.4 percent. However, Milei’s 2-year-old political party – La Libertad Avanza – only managed to obtain 16 percent of the seats in the lower house, 10 percent of seats in the senate, and no governorships.
At the time of the election, poverty, once rare in Argentina, had risen to about 50 percent of the population and voter frustration with a political class bent on self-preservation and perceived as having little interest on improving the livelihood of most Argentines, had reached new highs. In many respects, Milei’s victory was seen by political analysts as an anti-establishment statement and protest vote, and less an endorsement of Milei the individual and his politics. That said, Milei’s economic diagnosis for Argentina has caught the attention of many economists around the world, and not just those that self-describe as libertarian.
After ten months in office, Milei has achieved a fair amount of what he set out to do on the economic front: the government’s budget is in surplus for the first time in years, the central bank is no longer printing money, and inflation is down to low single digit monthly levels. But two essential challenges remain: the economy has not picked up and the Argentine peso has not been freed to float. Milei remains popular by most international standards, but political honeymoons don’t last forever and, as the 2025 midterm elections approach, the economy must start showing signs of reactivation.
2. What is Milei’s diagnosis of Argentina’s economic ills? And what is his approach to correcting them?
Javier Milei’s principal economic argument is simple: the public sector in Argentina is too big for its own good and as such, it crowds out initiative in the private sector. The deep political roots of the country’s corporativist economic model safeguard the architecture of this arrangement and preserve it in place. In short, there are too many Argentines living from government handouts and public sector jobs, the economy is overly regulated, and that regulation in turn strangles private sector enterprise. Years of fiscal deficits have led to periods of chronic government over-indebtedness which invariably have resulted in large defaults and brought about multi-year economic and political disruptions. The history of Argentina and the International Monetary Fund has been volatile at best, with over 21 support programs since it joined the IMF.
During the presidential campaign, Milei promised to take radical and prompt action to reform the economy. His administration acted quickly to engineer a shock fiscal adjustment that balanced the government budget and put an end to central bank monetization of fiscal deficits. Government deficits and the corresponding central bank credits to finance those deficits have been one of the main drivers fueling rampant inflation. Together with an economic downturn and a strengthening currency, Milei’s measures have had the desired effect of bringing monthly consumer price inflation down from about 25 percent at the end of 2023 to 3.5 percent in September, the lowest since 2021. (On a year-on-year basis, Argentine inflation, while declining, is still running at a high 237 percent.) The adjustment has also had the positive effect of shifting the trade balance to a surplus and the country has been able to build up its foreign exchange reserves.
To introduce discipline in economic management, Milei had initially intended to fully dollarize the economy, doing away with the Argentine peso. Upon assuming office, he discarded the idea because of a lack of foreign exchange reserves and at the recommendation of some of his advisors. Nonetheless, the currency regime is still inflexible: foreign exchange controls (the so-called cepo cambiario) restricting movement in the currency remain in place, as does a parallel exchange rate (the blue dollar).
Cognizant of his limited congressional support but riding the political wave of his landslide victory, Milei initially did not appear very interested in building political and societal support. Eventually this will have to change, and he will have to form political bridges with Congress and Argentina’s governors if he is going to consolidate and deepen his economic program with much-needed structural reforms. So, despite his initial successes, the jury is still out on Milei’s government.
3. Will Milei’s economic program be successful and what are the risks that it goes wrong? How is it different from previous attempts to stabilize the economy?
How is it going so far? If we were giving out report cards, Milei’s tenure would get a B+ to A- grade. Unusually for Argentina, the country has been running a fiscal surplus since the beginning of the year, inflation is down substantially, but the economy is not yet displaying clear signs of a recovery. However, inflation has come down not just because the fiscal accounts have been turned to a surplus, but also because the economy is in recession and the currency is appreciating in real terms. And herein lies the dilemma for Milei’s administration.
The first big risk for Milei’s government is the question of “when” the economy will pick up. This will determine whether Milei is politically and economically successful. When a recovery does take place, it should gain momentum as “animal spirits” get activated, pent up entrepreneurship kicks in, investment rises and, in the best of cases, an animated economic cycle unfolds. A recovery would also allow the government to distribute the pain of the fiscal adjustment more evenly across society, mitigating some of the political risk. The initial adjustment has hit the working and middle classes hard because that is where the bulk of government spending has been concentrated historically. Ultimately, the longer it takes for a recovery to appear, the higher the probability that Milei’s political capital runs out.
The last major attempt by Argentine policymakers to reform the economy took place during the administration of Mauricio Macri (2015-2019). That effort failed because of mistakes in the design of the adjustment program. In particular, the speed of the adjustment was too gradual and the sequencing of economic measures proved misguided. Milei and his economic team – some of whom were part of that Macri government – have studied and presumably learned from that experience.
Specifically, the Macri administration freed the exchange rate and removed capital controls but took a gradualist approach to fiscal adjustment. That gradualism proved fatal for Macri and his team. Milei seems to have taken note of that experience and reversed the sequence: his administration engineered a very tough fiscal adjustment from the very beginning; however, he has been slow to float the peso and remove capital controls, and here lies the second big risk for Milei.
An immediate concern is the level of the exchange rate. Following an initial devaluation of 50 percent at the end of 2023, the Argentine peso has been depreciating at about 2 percent a month, a pace that is lower than that of monthly inflation, so that in real terms the currency has been appreciating over the course of this year to levels that are beginning to appear overvalued.
While the appreciation of the peso has also contributed to bringing down inflation, it has made Argentina somewhat expensive. Over time, this is perhaps not sustainable. Economic history (and especially that of Argentina) shows that overvalued currencies have had a tendency to crash. In an ideal world, the authorities would at some point float the currency so that its value can move to a more competitive level and remove the controls on capital flows. The only way they can do that is if the rate of inflation comes down to below the pace of currency depreciation, and the country has built enough foreign reserves to lend credibility to a floating exchange rate system. Neither of those conditions exist yet.
4. What are the main risks facing his economic program? After 10 months in office, what do we know that we didn’t know before?
President Javier Milei’s administration has pursued a bold, “shock therapy” approach to overhaul Argentina’s economy. Eight months into his presidency, we have a clearer understanding of the political challenges he faces and the risks these pose to the sustainability of his program. Despite the radical nature of his reforms, Milei’s approval rating has remained stable at around 50 percent as of June, reflecting a cautious optimism among some Argentines. However, this support hinges on his ability to convert his policies into real, tangible improvements in their daily lives—something that has yet to materialize.
A key political risk for Milei is the difficulty in navigating a legislature where his party, La Libertad Avanza, lacks a majority. This requires him to negotiate with opposition groups to pass essential reforms, often leading to political compromises. For example, the passage of the “ley bases” faced strong opposition from left-leaning parties, which forced Milei to water down the bill. Nevertheless, the final version still contained several of the significant changes Milei wanted, showcasing his ability to achieve legislative success despite resistance. However, this win also highlights the larger challenge ahead: without continuous legislative victories, his administration risks becoming stagnant, losing the momentum necessary to implement broader economic reforms.
Looking ahead, Milei has already set his sights on the 2025 mid-term elections, where he aims to increase his party’s representation in Congress. Winning these elections would be crucial for him to secure the political power needed to push through his legislative agenda without relying as heavily on compromises. During a rally in Buenos Aires in September, Milei emphasized the importance of these elections, stating that a stronger showing in 2025 would allow his party to make a “big rumble” in Congress, giving it the leverage to pass key laws necessary for his governance. For Milei, the next year will likely see him acting more strategically, focusing on building alliances and increasing his political capital to prepare for this pivotal moment.
The patience of the Argentine public is another significant political risk. While Milei’s approval rating has remained steady, the initial optimism is starting to fade as citizens have yet to see significant improvements in their quality of life. Social unrest is growing, with trade unions and other groups organizing protests against austerity measures and deregulation that have negatively impacted wages and living standards. The upcoming elections, therefore, are not just about gaining legislative strength—they also represent a critical juncture for Milei to prove that his economic reforms can yield tangible results, or risk losing the public’s patience and support.
Milei has also shown a recognition of these risks by delaying some unpopular measures, such as price hikes for utilities and public transportation. While this indicates his awareness of potential backlash, it also suggests a delicate balancing act between maintaining fiscal discipline and avoiding social unrest. In the coming months, his ability to navigate this balance will be critical. If Milei can continue to secure legislative wins, even if they require compromise, he may sustain the momentum needed to keep his administration’s agenda moving forward. However, if he fails to manage the growing discontent and opposition, the government risks becoming stuck, unable to implement the broader reforms essential for long-term economic recovery.
Ultimately, Milei’s political future will depend on his ability to adapt his strategy to maintain legislative alliances and manage public expectations. If he cannot deliver progress soon, the opposition may gain ground, and the risk of further protests could lead to greater instability, threatening the continuity and success of his administration’s efforts.
5. Should we pay attention to the political noise created by President Milei, and how does he compare to other far-right populists like Trump and Bolsonaro?
President Javier Milei’s rhetoric and public persona are central to his administration, mirroring the strategies of far-right populists like Donald Trump and Jair Bolsonaro. Like these leaders, Milei uses controversial statements and confrontations—such as his spats with Brazil’s President Lula da Silva and Spain’s Prime Minister Pedro Sánchez—to stay in the spotlight and position himself as an outsider taking on the political establishment. While these moves generate headlines, they do not address Argentina’s fundamental economic problems, raising the question of whether his approach is sustainable in the long term.
Comparisons with Trump and Bolsonaro are relevant but only to a limited extent. Unlike these leaders, whose populism extended into broader cultural and social issues, Milei’s focus is almost entirely on the economy, a reflection of Argentina’s severe economic crisis. Argentine voters are primarily concerned with inflation, poverty, and economic instability, and Milei’s platform is built on promises to fix these problems. However, unlike Trump and Bolsonaro, who had larger party structures and institutional backing, Milei’s party is small and lacks deep-rooted support, making it necessary for him to compromise with other political actors to push his agenda forward.
This need for compromise became evident with the passage of the “ley bases.” Although Milei succeeded in getting it through Congress, the final version was significantly diluted due to opposition resistance. This legislative win demonstrates his ability to navigate Argentina’s political landscape, but it also shows the limitations of his outsider status. To avoid stagnation and push forward his reforms, Milei must continue negotiating with the political establishment he once criticized, risking the perception of compromising his principles.
Despite Milei’s political noise, Argentine voters appear more concerned with whether he can deliver economic improvements. His approval rating remains stable at around 50 percent, indicating that many are willing to overlook his antics as long as they believe he is serious about economic reform. However, patience is not endless. The early austerity measures have yet to yield tangible benefits for most citizens, and social unrest is growing. If Milei’s policies do not start showing results soon, his approval could decline, and the opposition may gain momentum.
Ultimately, while Milei’s political noise keeps him visible, the success of his administration depends on the outcomes of his economic plan. His pragmatic actions behind the scenes, like renewing the currency swap deal with China despite anti-China rhetoric, show he is willing to compromise when necessary. Whether this dual strategy of maintaining a populist image while negotiating pragmatic deals will hold remains to be seen. Without significant progress, Milei risks losing the support essential for his administration’s survival.
Tulio Vera is the President and CEO of Global Americans. Juan Diego Solis de Ovando Bitar is a Program Associate at Global Americans.
Republished from Global Americans with permission.
