Argentina: Milei’s shock therapy works – at first glance

During the election campaign he symbolically waved the chainsaw, and in office he uses it. Argentina’s President Milei, a libertarian economist, is cutting government spending. The result: increasing poverty and deep recession.

Although the numbers themselves were already known, the announcement was still a sensation for Argentina: the budget had been in the green for an entire quarter, explained Javier Milei in a state-sponsored, nationally broadcast TV speech. The first budget surplus in 16 years.

“We made the impossible possible,” boasted Milei, not without lashing out at our political opponents: “Even if the majority of politicians, the unions and journalism were against us and Congress doesn’t give us any room for maneuver.” This budget surplus is the guarantee that we will “leave the inflationary hell in Argentina behind us,” Milei continued.

Ax to the state Supports

Argentina has been groaning under a gigantic mountain of debt for years, and Milei has inherited a chronic budget deficit and a bloated state apparatus. In contrast, he symbolically pulled out the chainsaw during the election campaign. “No hay plata,” is his mantra, “there is no more money.”

The consumptive national currency, the peso, was massively devalued, civil servants were laid off, public construction projects were stopped, and subsidies were canceled. “The time for state support is over. Zero deficit, that is not just an advertising slogan for this government, but a commandment,” emphasizes the head of state.

Slowing inflation but deep recession

Inflation – although still the highest rate of inflation in the world – has at least slowed and foreign exchange reserves have increased. Heroes, that’s what Milei calls his economic cabinet, which stands next to him. But there is also skepticism.

“The market is looking at Milei’s measures with optimism, especially the zero deficit, but that doesn’t mean there is a blank check,” says financial influencer Federico Tessore. He gives weekly investor tips on YouTube. “There are also doubts about how sustainable the results so far are, because Milei is not making any progress with its announced structural reforms. And investors also know that everything can change again very quickly in Argentina.”

A large part of the savings is simply due to the fact that pensions, salaries and social benefits were no longer adjusted to inflation and bills were not paid. “Liquadora” is what they call it in Argentina, which means something like “liquefier”. The costs of this strategy are borne primarily by the middle class. Poverty has increased dramatically, consumption has collapsed and the country has slipped into a deep recession.

“We have to go through that now”

At Mariano Meier, for example, most of the machines are idle. The medium-sized company cuts metal parts in the industrial belt of Buenos Aires: for cars, bicycles and industrial kitchens. But now hardly any orders come in – but he still has understanding and patience for Milei’s austerity policy. Still.

“This is not a good moment for our company, people have no more money, no one is buying anything anymore and everything is becoming more expensive,” says Meier. “But I think we have to go through that now. Argentina needs a radical change. You may think Milei is crazy, but at least he’s doing what he says: stabilizing the economy so that things start to improve again. I don’t have a crystal ball, but I do Hope.”

But the entrepreneur also notes that a change in mood can already be felt among his employees, most of whom voted for Milei. If the economic situation doesn’t improve noticeably in the next few months, things will get complicated – also for Milei, because he needs the support of the population.

Is a country going to waste?

The president does not have his own majorities. His major reform package, which envisages privatization and more deregulation and would also grant him special rights, is still stuck in Congress, which he likes to insult as a rat’s nest. Some have long been wondering whether the libertarian head of state is not making the country healthy in the long term, but rather ruining it.

“There is no money, says Milei. And it is true that the state spends more than it takes in,” says economist and former deputy economics minister Fernando Morra. “But Milei is not interested in reducing the size of the state or making it more efficient, but in getting it out of everything. He wants to break up the state.”

And there is always protest against this. Most recently, hundreds of thousands took to the streets against Milei’s austerity policies in the education system.