Successes, challenges and recommendations for action in Argentina under President Milei.

BY KARL-HEINZ PAQUÉ AND
HANS-DIETER HOLTZMANN

In November 2023, Javier Milei was elected President of Argentina with a clear majority of 56% and took office in December. He inherited a difficult legacy from the previous Peronist government with hyperinflation of 211% in 2023, a recession of 1.6% and a high poverty rate of 45%. We are taking the upcoming first anniversary of the new government as an opportunity to highlight the economic policy successes to date and the challenges that remain, and to derive appropriate recommendations for action from our perspective.

FIRST ECONOMIC POLICY SUCCESSES

1.Significant decline in inflation

Milei had taken over a disastrous economic and financial policy from the previous Peronist government under the leadership of Alberto Fernández. In 2023, Argentina had the highest inflation rate in the world at around 211%. In election surveys, the population cited hyperinflation as their biggest concern. During the election campaign, Milei had promised to make the fight against inflation his top priority. Immediately after taking office, Milei presented an ambitious economic program with a comprehensive omnibus law (“Ley Bases”) with over 600 measures and an emergency decree “Decretos de Necesidad y Urgencia (DNU)” with around 300 measures. However, Milei and his movement “La Libertad Avanza” (“Freedom Advances”) do not have their own majority in either chamber and are therefore dependent on the support of middle-class and moderate Peronist MPs. After a failed first attempt in April, Milei succeeded in getting the omnibus law through Congress in July, albeit in a significantly slimmed-down form with around 200 measures. The emergency decree, an instrument used by previous Argentine presidents to govern, is still in force, having been rejected by the Senate but not – at least not yet – by the Chamber of Deputies. With the passing of the omnibus law in particular, Milei has achieved an important milestone, both as proof of his ability to act in a challenging parliamentary constellation and with regard to his economic policy programme with a focus on reducing government spending, cutting red tape and presenting a privatization agenda.

Milei has succeeded in significantly reducing the inflation rate in his first year in office by implementing tough austerity measures. On a monthly basis (as at October), inflation now stands at around 2.7% – by historical standards only. Food prices in particular have recently risen less sharply, while rents and energy prices have continued to rise at an above-average rate. On an annual basis, however, the inflation rate is currently still around 200%, but is likely to fall further in the coming months, if only due to the statistical effect that the high monthly inflation rates inherited from the previous government are gradually being removed from the annual calculation.

2. First budget surpluses

In addition to combating inflation, Milei has dedicated himself to budget consolidation as the second prominent goal of his economic and financial policy. In line with his self-declared world view as a libertarian anarcho-capitalist, Milei sees the state as a fundamental evil and only recognizes the safeguarding of public order and the legal system as legitimate state tasks. As soon as he took office, Milei began to reduce state spending by abolishing or merging ministries and subordinate authorities. In addition, wages and salaries in the public sector and pensions rose more slowly than inflation, resulting in real budget savings. In Argentina, this policy of “cold progression” of falling real incomes has a long tradition and is known as “La licuadora” (“mixer”). In addition, Milei – in line with his libertarian economic philosophy – has put an almost complete stop to public infrastructure projects, which will have to be financed privately in future and coined the phrase “No hay plata” (“There is no money”), which has since mutated into a YouTube classic. The gradual reduction of social benefits and subsidies, particularly for food, energy and public transport, resulted in severe cuts for the population. Milei achieved further reductions in the national budget through the – constitutionally controversial – deferral of payments from the central government to the provinces and threatened those governors in particular with financial consequences who did not support his political course. Not a single one of the country’s 24 governors (including the autonomous capital Buenos Aires) is a member of Milei’s “La Libertad Avanza” movement, and this will not change until the next elections in December 2025.

Since January, the new government has been able to achieve a budget surplus every month (for the first time since 2008), although a slight deficit was recorded again in July, which the government explained with seasonally higher expenditure. The budgetary discipline that has been introduced is also an important prerequisite for further debt restructuring negotiations with the IMF, of which Argentina is the largest debtor. The loan of $44 billion – and the necessary gradual reform measures – were negotiated in 2018 under then President Mauricio Macri.

3. First investment announcements in the energy and raw materials sector

Argentina is not only rich in agricultural products, but also has attractive conditions for investments in the energy and raw materials sector. The country has considerable gas and hydrogen reserves and favorable climatic conditions for renewable energies as well as valuable raw materials, particularly lithium, which is important for battery production and is one of the three countries with the largest reserves after Chile and Australia, but also copper, for example. Previous investments in northern Argentina have mainly come from China and are controversial, not least because of their impact on the environment and local population. However, due to geopolitical and economic risks, Western countries are now striving for greater independence from authoritarian countries such as Russia and China in the energy and raw materials sector and are working to diversify their procurement markets. As a pro-Western, democratic country and due to its existing resources, Argentina offers considerable potential here. The fact that this offer has not yet met with greater demand from the West has to do in particular with the adverse investment conditions in the country to date. This is precisely where Milei came in by launching the investment promotion package RIGI (“Régimen de Incentivos para Grandes Inversiones”, “Incentive System for Large Investments”) as part of the omnibus law, which includes 30-year tax concessions and foreign trade facilitation for larger investments (over USD 200 million) in selected sectors (including energy, raw materials, infrastructure, technology). Since the law came into force in July, the first foreign companies have already announced investments, following the growing interest of foreign companies in Argentina since Milei took office. The country risk for Argentina on the international markets has also decreased significantly compared to the previous Peronist government, although it is still above the initial level of Mauricio Macri’s presidency (2015-2019).

4. Expansion of rental supply through relaxation of tenancy law

With the emergency decree that came into force at the end of 2023, Milei introduced a comprehensive liberalization of tenancy law. Under the previous Peronist government, rental agreements were subject to numerous restrictions: The term had to be at least three years, adjustments to hyperinflation were only allowed once a year and contracts had to be concluded in the local currency, the peso, which was suffering from a chronic decline in value. In view of these restrictions, many landlords refrained from putting their apartments on the market, preferring to leave them empty as investment and speculative properties. As a result, the demand for apartments far exceeded the available supply. This changed abruptly after the change of government and the liberalization of tenancy law: terms and currency could be freely negotiated between the tenants, often now on a quarterly basis and in US dollar. The relevant real estate portals immediately recorded more than double the number of apartments on offer.

While this – economically expected – volume effect can be seen as a success, the price effect requires a more differentiated view. Existing tenants often had to accept a tripling of their rent when renewing their expiring contract. Rents for new lettings, on the other hand, have fallen after adjusting for inflation. However, the absolute level of rents in Argentina is still high. Added to this are the extra costs, which have risen significantly due to the drastic reduction in subsidies, particularly for energy. As a result, 4 out of 10 young Argentinians between the ages of 25 and 35 still live with their parents or grandparents.

ONGOING ECONOMIC POLICY CHALLENGES 

1.Recession

The new government’s initial successes in reducing inflation and budget deficits have not yet been reflected in an improvement in the country’s real economic situation. On the contrary, Argentina is in a severe recession and both Argentinian and international economists expect GDP to fall by just under 4% this year, having already fallen by 3.4% in the first half of the year. This makes Argentina the only G20 country to suffer from a severe recession this year. The main objective of Milei’s economic policy is to combat inflation; all other objectives are subordinate to this overall goal. As a result, the population is paying a high price in the form of an economic crisis for the lower inflation that is generally longed for. Consumer demand has slumped by a double-digit percentage over the course of the year, exacerbated by the almost complete halt to public investment. Milei is appealing to the population’s patience to get through the current dry spell and promises light at the end of the tunnel as soon as the – in his view dominant – problem, inflation, has been sustainably solved. While Milei already announced an end to the recession at the beginning of November, economic indicators and business voices have so far painted a more cautious picture. The most discussed question among economists in Argentina at the moment is therefore when and how strong the economic upturn will be, whether in the form of a “V”, “U” or just an extension of the misery in the form of an “L”.

2. Higher unemployment

In the meantime, unemployment has replaced inflation as the biggest concern of Argentinians in surveys. Directly linked to the economic crisis is an increase in (official) unemployment to 8%. It should be noted that the proportion of employees in the informal sector in Argentina is around 45%, which means that – as in many Latin American countries – they have no social security. Lower consumer demand and less investment lead to less demand for labor. At the same time, more labor is being offered, as more and more Argentines are dependent on second or even third jobs due to wages lagging behind inflation. At the same time, jobs in the public sector are (inevitably) disappearing: in order to reduce government spending and increase the efficiency of the public sector (around 3.5 million state employees), which was greatly boosted under the previous Peronist government, Milei has begun to cut tens of thousands of jobs in the public sector (so far around 30,000 of the 70,000 announced).

3. Sustainable reduction in inflation?

Even if the significant fall in inflation since the new government took office is a clear success, it remains to be seen how sustainable this will be. Firstly, the gradual reduction in subsidies, e.g. for food, energy and public transport, is likely to naturally cause prices for these goods and services to rise, which is already evident in everyday life. Secondly, the fall in inflation is also partly due to the recession-related decline in consumer demand. In order for inflation to remain low in the longer term once demand picks up again, a growing supply of goods and services is therefore required. Thirdly, the concept of official inflation measurement in Argentina is not uncontroversial, as the price increase for the basic goods they need, particularly as perceived by the poorer population, is in some cases significantly higher than the officially reported figures, which casts doubt on the representativeness of the basket of goods used as a basis.

4. Sustainable fiscal policy?

The reduction in budget deficits can also be seen as a success for the new government. Budget surpluses have been achieved on a monthly basis since the beginning of the year, although this turned back into a slight deficit in July. It must also be noted that, in addition to actual cuts, the savings were partly achieved with the help of “low hanging fruits” in the form of one-off measures that are unlikely to be sustainable, at least not without negative effects on growth and social stability: wage and salary payments and pension increases that are below the inflation rate (“mixer”), withholding of payments from central government to provinces, practically complete halt to public construction investments.

5. Overvalued peso

Immediately after taking office in December, the new government devalued the peso by 54% against the US dollar with the aim of reducing the gap (“La Brecha”) to the unofficial exchange rate (“Dólar Blue”), which was initially successful. Since then, however, Milei has maintained a creeping devaluation (“crawling peg”) of the peso by only 2% per month, which is well below the inflation rate. As a result, the gap between the official and unofficial exchange rate has widened again, which was also due to political uncertainty, at least until the omnibus law was passed in July. The markets therefore consider the official exchange rate to be overvalued, which makes exports that are important for the Argentinian economy (especially agriculture) more expensive, and Argentinian industry is only competitive internationally to a limited extent anyway. Conversely, imports have become cheaper due to the exchange rate, with the result that Argentines are increasingly buying from neighboring countries (particularly Chile), meaning that local companies in Argentina are lacking demand, which is further exacerbating the economic situation.

6. Considerable foreign trade restrictions continue

In addition to the overvalued peso, the still considerable foreign trade restrictions make the international exchange of goods and services more difficult and are also proving to be a barrier for foreign investors. Imports are currently still subject to high taxes (PAIS) of 17.5%, which results in considerable costs for both private consumers and companies in Argentina. For example, a normal bar of chocolate imported from Europe costs the equivalent of 8 euros, making it a luxury good in Argentina, whereas on the ferry to the other side of the Río de la Plata to Uruguay it costs only half that amount, and in German supermarkets just one euro. The consequences are more serious for companies in Argentina that are dependent on inputs from abroad for their production or that have to pay for software licenses, for example. The new government has announced its intention to reduce import taxes to 7.5% by the end of the year, which is urgently needed in view of the price disadvantages.

While import taxes can at least be taken into account by companies in their price calculations, existing import licensing requirements continue to make economic activity in Argentina practically unpredictable. Waiting times for the approval of imports and bureaucratic customs clearance processes, even for everyday items, lead to production losses and long delivery times. There is currently a shortage of plastic, for example, which means that there are even waiting times for plastic cards such as driving licenses to be issued.

In addition, there are restrictions on foreign currency transactions (“cepos”) with the result that foreign companies have to wait for payment for their services from their local business partners in Argentina and therefore sometimes even forego new business opportunities. Private households are only legally allowed to exchange the equivalent of $200 per month from pesos. Despite this, Argentina is considered to have the third-largest stock of US dollars in the world after the USA and Russia. It is also estimated that Argentinians have invested hundreds of billions of US dollars abroad, often in neighboring Uruguay, which is an important location for offshore banking. Milei and his economy minister Luis Caputo have announced that they will only be able to lift the currency restrictions in a “phase 3” (after the shock therapy in “phase 1” and after successful stabilization in “phase 2”, in particular the sustained fight against inflation). It is unclear when this will be, as it depends on the inflation figures for the coming months. In a speech at the New York Stock Exchange at the end of September, Milei specified that the “Cepos” could only be lifted once inflation had fallen to 0%. The market reaction was correspondingly negative. From an economic perspective, it should also be noted that an inflation target of 0% is neither sensible nor necessary for monetary stability; even internationally respected central banks that are successful in terms of stability policy, such as the Fed or the ECB, do not pursue zero inflation, but an inflation target of 2%. Particularly in view of Milei’s fundamental liberal economic convictions, it is surprising that his government is taking such a hesitant approach to the issue of liberalizing foreign exchange trading, especially as this is also hampering an economic revival by increasing Argentinian exports.

7. Superfluous diplomatic conflicts

At his first major international appearance after the election, Milei set out his economic policy and philosophical credo at the World Economic Forum in Davos at the end of January. The West was threatened with extinction, the main opponent was socialism, to which the market was morally, economically and historically superior. Any state intervention outside of security policy is counterproductive because there is no market failure (not even in competition, social or climate policy), Milei explained his world view, which he himself describes as libertarian and anarcho-capitalist. In doing so, he also aggressively distances himself from classical liberalism, as represented in particular by the Friedrich Naumann Foundation for Freedom with its commitment to freedom, the social market economy, human rights, democracy and the rule of law. Milei regards liberalism as “treason” and just another form of socialism that “puts obstacles in the way of the markets”. Since then, Milei has not limited himself to implementing his political ideas in Argentina, but is passionately involved in an international cultural struggle between freedom and socialism. To this end, he maintains and intensifies a network of right-wing and authoritarian – and often only limited freedom-loving – international leaders, from Donald Trump and Jair Bolsonaro to Viktor Orbán and Vox in Spain.

Milei’s speech at the UN General Assembly at the end of September, where he distanced himself from the “Pact for the Future”, which was supported by 134 member states, also met with widespread international incomprehension. He justified this by saying that it was a “socialist agenda” that would jeopardize Argentina’s economic recovery. Argentina thus joined a community of the few states rejecting the pact, including North Korea, Iran and Sudan. In mid-October, the Argentinian government announced that it would not sign a final declaration on women’s equality at the G20 summit in Rio de Janeiro in November, the only country to do so after even Saudi Arabia had announced its support. At the COP29 climate change conference in Baku in mid-November, the Argentinian delegation left early.

Milei firmly criticizes the Russian invasion of Ukraine, Hamas’ attacks on Israel and the socialist Latin American dictatorships in Venezuela, Nicaragua and Cuba, which is also to be welcomed by the Friedrich Naumann Foundation for Freedom. He also follows up speeches with action – for example by admitting Venezuelan opposition politicians to the Argentinean embassy in Caracas, whereupon ruler Maduro broke off diplomatic relations between the two countries and the Argentinean embassy and its occupants are – currently – under the care of Brazil.

On the other hand, it is problematic that Milei repeatedly gets carried away with completely exaggerated attacks on democratic politicians – both in speeches and in his intensive participation in social media. For example, his repeated verbal attacks on Spanish Prime Minister Pedro Sánchez and his wife (“corrupt”) led to the recall of the Spanish ambassador to Argentina. At the same time, Milei’s trips to Spain were used to intensively solicit investments from entrepreneurs, for which the attacks on Sánchez were counterproductive. Since taking office, Milei has not had a single bilateral meeting with Brazilian President Lula da Silva, the country’s MERCOSUR neighbor and the largest economy in Latin America. Instead, Milei refers to Lula as either a “dictator” or a “dinosaur”. He also provoked Lula by having his – now dismissed – foreign minister Mondino represent him at the last MERCOSUR summit and meeting with Lula’s predecessor and arch-rival Bolsonaro in Brazil at the same time. The personal dislike between Milei and Lula is preventing stronger political and economic cooperation between the two countries, as well as stronger integration of MERCOSUR. It is even jeopardizing the conclusion of the EU-MERCOSUR free trade agreement, which has been under negotiation for over 20 years, with Milei recently even bringing up a bilateral agreement of his own with the EU.

Foreign companies considering Argentina as an attractive location for investment per se are irritated by Milei’s constant diplomatic skirmishes. Good international relations, especially between democratic countries, especially at the highest political level, despite all the differences in detail, are not least an important factor of trust and therefore a location factor.

Recommendations for action

1. Continue stabilization, promote growth

The new government has achieved its first important successes in stabilizing monetary and fiscal policy. It is now important to secure this macroeconomic strategy in the long term so that hyperinflation and high public debt in Argentina are finally a thing of the past.

At the same time, Argentina needs a microeconomic growth strategy in order to emerge from the current severe recession and put the country on a sustainable growth path. Stabilization was a necessary, but not a sufficient condition for growth. It is therefore highly doubtful whether a one-sided focus on combating inflation and budget deficits will be enough to put the country into growth mode. This requires domestic and foreign investment and, in turn, attractive and internationally competitive framework conditions. Important elements here are a reduction in bureaucracy and overregulation at all levels of local government, a modern infrastructure (particularly transport, digitalization, education and healthcare), efficient banking and capital markets and an efficient tax system. The government’s statement “No hay plata” (“There is no money”) is too general and neither factually nor politically comprehensible. It is crucial that the government succeeds in creating attractive investment opportunities in Argentina, not least so that wealthy Argentines can once again invest their considerable foreign assets productively in their own country. Today, there is often a chicken-and-egg problem: the state lacks tax revenue, while tax avoidance is the number one national sport for wealthy Argentines and companies (even ahead of soccer) in order to avoid what they see as a waste of tax revenue generated in the private sector in a bloated state apparatus that suffers from widespread corruption, at least under the previous Peronist government.

Even representatives of the IMF – despite their fundamental support for Milei’s stabilization course – have recently expressed criticism of the one-sided focus on reducing inflation. For example, they consider the interventions in the foreign exchange market in the form of sales of US dollars to support the peso to be neither expedient nor sustainable due to the already limited foreign exchange reserves of the Argentinian central bank. Capital controls are also counterproductive for the country’s economic recovery. Their removal would be an important confidence signal for the markets and could directly stimulate foreign trade and investment, especially in conjunction with the new RIGI investment promotion law. Although the liberalization of foreign exchange transactions would initially lead to a devaluation of the peso and thus temporarily to higher inflation, it would also make Argentine exports cheaper and the peso would strengthen again as economic activity picks up.

2. Central bank independence instead of dollarization

During the election campaign, Milei ran on the promise of replacing the peso with the US dollar and abolishing Argentina’s central bank. Since taking office, Milei has repeatedly referred to this “ultimate goal” in his public appearances, even though he has not yet presented a timetable. Most recently, he has also brought up the idea of a parallel currency system – which Argentina already has de facto due to the aforementioned importance of the US dollar as a means of storage and payment. The impressive successes in combating inflation also show that abolishing the central bank is not necessary. On the contrary, this would make Argentina completely dependent on the monetary policy course of the US Fed, even if this would contradict the monetary policy measures required for Argentina in terms of economic policy. Instead, it is important to enshrine the independence of the Argentine central bank in constitutional law and to provide it with a clear stability-oriented mandate so that it is not misused as an extension of the money-printing machine of politicians, as has been the case to date, but is responsible for monetary stability. No democratically constituted country in the world with an independent central bank suffers from hyperinflation. This is the key to institutionally safeguarding monetary stability and not the dollarization and abolition of its own central bank with potentially considerable negative side effects.

3. Focus on economic problems in the country instead of a culture war around the world

Given the scale of the economic – and social – problems inherited from the previous government, this should be the focus of the new government’s work. Although initial stabilization successes have been recorded, the country is in the midst of an economic crisis and many Argentines are worried about their jobs and how they will be able to pay for the rising prices of everyday necessities by the end of the month. The global cultural war against socialism started by Milei in Davos – and continued in New York – and the internal fight against those who think and live differently – be it through the closure of anti-discrimination offices, the renaming of buildings and almost daily attacks on social media – is alienating, consumes energy and triggers unnecessary conflicts where priorities should be set on Argentina’s central economic problems.

4. Building consensus and a broad majority

Milei was elected president with a clear majority, and around half of the population continues to support his course. His supporters stand by him, partly out of genuine conviction, partly out of hope and partly out of desperation due to a lack of alternatives. This gives him a tailwind for the implementation of his political ideas. However, as already mentioned, he does not have a majority of his own in either chamber of Congress and is therefore dependent on at least selective cooperation with bourgeois and moderate Peronist MPs. Milei’s confrontational political style (“I don’t negotiate”) – at least as a starting position – and his friend-foe thinking has led to unnecessary delays and dilution, particularly with regard to the all-important omnibus bill. This is despite the fact that there is basically a majority in Congress in favor of a reform course and members of other parliamentary groups had also offered Milei at least selective, constructive cooperation. Congressional elections are not due until December 2025, and Milei will have to manage without its own majority for at least that long. He will have to seek majorities and accept compromises until the elections, both on the budget and tax reform issues excluded from the omnibus law and on more far-reaching reform projects – Milei has already announced that he has “around 3,000” more reform measures prepared. It is to be hoped that he will proactively seek this consensus in order to be able to implement key reform projects swiftly in view of the challenging economic situation.

The broader the political majority that supports Milei’s reform course in Congress, the clearer the message to those in the organized Peronist opposition and in the population who are fighting the course of the new government in weekly, sometimes violent demonstrations in front of Congress and on the streets of Buenos Aires and – despite all the failures of the past – continue to dream of a Peronist-socialist Argentina.

5. Efficient social policy

The official poverty rate in Argentina is 53%, which is higher than the 45% recorded at the end of last year. The poorest parts of the population in particular are suffering from the new government’s reduction in subsidies for food, energy and public transport. In terms of public policy, the reduction in subsidies is the right thing to do, especially in order to balance the national budget. For example, a bus ticket in Buenos Aires cost around 70 pesos in November 2023, the equivalent of 7 cents. In order to keep public transport running, considerable subsidies from public funds were therefore required. In addition, investments in the maintenance, let alone modernization, of the transport system could not be achieved with these prices and were therefore neglected. Since the new government took office, public transport prices have increased tenfold, meaning that many Argentinians can no longer afford the daily bus ride to work or school and have to walk long distances instead.

Instead of distributing subsidies according to the watering can principle with artificially low prices, it would make sense to support the truly needy with direct financial transfers – in addition to a growth policy that ensures more investment and more productive and therefore better-paid jobs. This would be an expression of a social market economy instead of a crude libertarian “every man for himself” approach.

Another important component of a more efficient social policy is the reform of social security systems, particularly pensions. The political debate in Argentina today focuses almost exclusively on the level of pension adjustments in line with inflation. However, the excessive fragmentation of social security institutions, which leads to unnecessarily high administrative costs on the one hand and only a loose connection between contributions and benefits in the form of partially overlapping pension entitlements and privileges for certain occupational groups on the other, has not yet been addressed. In addition, Argentina is not immune to demographic change, albeit to a lesser extent than in other countries such as Germany or Japan. It is therefore also important to future-proof the pension system in Argentina. This includes increasing or making the retirement age more flexible and developing the current pay-as-you-go pension system into a more strongly funded one. The latter could also improve the supply of capital market financing for investments in the country.

6. Studying historical role models

Even if historical situations are only ever transferable to a limited extent, it is worth taking a look at the history of Argentina’s economic challenges. Here, the period of government of Carlos Menem and his Minister of Economy Domingo Cavallo is particularly suitable as a case study for the new government. They implemented a comprehensive stabilization programme in the 1990s, which initially successfully combated hyperinflation and liberalized the economy, but ultimately failed due to an overly rigid currency board to the US dollar, which offers interesting lessons for dollarization in Argentina.

There are also international case studies that are worth analyzing:

• Exactly 100 years ago, the liberal Chancellor Gustav Stresemann implemented a successful austerity program in Germany with a radical currency reform and drastic cuts in public spending and reintegrated Germany into the international community, including its capital markets, after the turmoil of the First World War – even if this only lasted for a short time after his death and the global economic crisis.
• Just a few weeks after the fall of the Iron Curtain, Prime Minister Leszek Balcerowicz implemented an ambitious reform program in Poland in order to free the country from socialism, stabilize the economy and unleash market forces with a rapid and comprehensive “shock therapy”. Since then, Poland has developed into an economic success story in Europe, leaving many Eastern European countries behind.
• As President of Brazil in the 1990s, Fernando Henrique Cardoso dedicated himself to fighting inflation. At the same time, he modernized the education and healthcare systems and introduced a system of direct transfer payments for those most in need. He stands for a model that combines economic success with modern, efficient social policy.

These – exemplary – case studies can provide Argentina with instructive illustrative material that stabilization and growth are possible, but also require a consistent economic policy, which must not neglect social cohesion.

7. Focus on Argentina’s own strengths instead of dreaming of the “Ireland of South America”

Both Milei and other top politicians in Argentina repeatedly cite Ireland as a role model for Argentina. In his speeches, Milei points out, statistically correctly, that Ireland’s GDP per capita is 50% higher than that of the USA. There is no doubt that Ireland is an example of a country that has developed from a “poorhouse” of Europe in the 1980s into an internationally successful location with impressive growth rates. Nevertheless, Ireland is not a suitable role model for Argentina. Not only because Ireland also has challenges (e.g. strong dependence on foreign investors, small domestic market, strained real estate sector). More importantly, Ireland’s economic upturn since joining the EU in 1973 has been significantly supported by substantial structural funds from Brussels. Ireland cleverly used the associated fiscal relief to achieve low corporate tax rates of around 10% and thus managed to attract foreign investment, particularly from the USA in the technology, pharmaceutical and financial sectors. However, MERCOSUR is not (yet) the EU, and so there are no structural funds for Argentina from Montevideo, the headquarters of MERCOSUR. Ireland has also recently benefited considerably from Brexit, as it is now the only English-speaking country in the EU (alongside Malta). Many companies from third countries are now using Ireland instead of the UK to benefit from the freedom of movement and passporting of the single market. There is no such “windfall profit” as Brexit for Argentina either. Furthermore, although the Spanish language is becoming increasingly popular, the lingua franca of the (business) world is English.

Instead, Argentina should focus on its own strengths, which it literally has in abundance with its resources in the energy and raw materials sector and – unfortunately not a matter of course in the region and globally – a stable democracy without military conflicts in the neighborhood. It also has a (relatively) young and, by Latin American standards, well-educated population with a high affinity for technology. Some of the Argentinian start-up “unicorns” with a market valuation of more than $1 billion are also internationally successful. It is no coincidence that Milei promotes investments from the technology sector during his numerous visits to Silicon Valley, where he wants to develop Argentina into a global center in the field of artificial intelligence. However, it should be critically noted here that this is expressly intended to take place without appropriate regulation and competition policy, with the risk of a “race to the bottom” with potentially negative effects on macroeconomic welfare effects, the long-term innovative capacity of the sector and cyber security, which is increasingly endangered worldwide by criminals and authoritarian regimes.

With an economic policy geared towards sustainable stabilization and growth that does not neglect social cohesion, and as an internationally reliable and responsible partner, Argentina has the opportunity to build on the glorious times of the end of the 19th century, when it was the richest country in the world and a place of longing for many Europeans (“Rich like an Argentine”). Argentina has every opportunity, it just has to seize it!

Prof. Dr. Karl-Heinz Paqué is Chairman of the Board of the Friedrich Naumann Foundation for Freedom. Dr. Hans-Dieter Holtzmann heads the Foundation’s office in Buenos Aires.

This article originally was published by the Friedrich Naumann Foundation for Freedom.

Republished with permission from Dr. Hans-Dieter Holtzmann.

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