By Maggie Johnson
December 12, 2024
Image Credit: “Libertarian Javier Milei Inaugurated President of Argentina,” available at Yahoo Images (12/12/2024).
When Javier Milei took office as Argentina's libertarian president a year ago, the nation was grappling with a dire economic crisis. Inflation was spiraling out of control, with supermarket prices rising daily and middle-class families scrambling to spend their rapidly devaluing pesos. Economists warned of an impending hyperinflation crisis. Milei, a self-proclaimed "anarcho-capitalist" and former TV pundit, rose to power with radical promises to dismantle the central bank, slash government spending, and eradicate inflation. Despite his eccentric personality and lack of political experience, he embarked on an aggressive agenda to stabilize Argentina's economy.
Milei implemented severe austerity measures immediately after assuming office. Subsidies for energy and transportation were cut, tens of thousands of public-sector workers were laid off, public infrastructure projects were frozen, and wages and pensions were capped below inflation. These moves triggered widespread economic pain. Unemployment rose, economic activity slowed, and poverty surged to levels not seen in decades. Despite these challenges, recent data shows progress. Monthly inflation has dropped sharply, the disparity between the black market and official exchange rates has significantly decreased, and Argentina's country-risk index has reached its lowest point in five years.
Inflation, Milei's top priority, has shown significant improvement. Monthly inflation dropped from 25.5% in December 2023 to 2.7% in October 2024, marking its lowest point in three years. While the annual inflation rate remains at 193%, many Argentines view the sharp monthly decline as a sign that Milei's strategy is working. Deli worker Jazmin Quintana noted that while she finds Milei's personality abrasive, she acknowledges the progress and hopes his policies continue to deliver results.
The peso's strengthening has further boosted confidence. The black market dollar rate has declined since July, narrowing its gap with the official rate. A tax amnesty encouraging Argentines to declare hidden dollar savings has bolstered foreign reserves by $19 billion. However, this stronger peso brings risks, including making exports less competitive and deterring foreign investment. Rising prices have become a concern for tourists and locals alike, with travelers warning of costly goods and services during Argentina's peak tourism season.
Milei's reforms have come with significant social costs. His administration achieved the first budget surplus in 12 years, but severe cuts to public spending accompanied this. Universities have faced budget freezes, with some struggling to maintain basic operations. Cultural and scientific institutions were shuttered, and suspended public works projects left cities dotted with unfinished structures. Over 200,000 construction workers lost their jobs in the past year, and consumer spending has dropped by 20%. Poverty rates have surged to 52.9%, the highest in two decades. Pensioners, in particular, have been hit hard, with stagnant monthly pensions averaging just $300, leaving many struggling to survive.
Despite these hardships, Milei has defied expectations by avoiding mass protests and maintaining approval ratings of around 50%. Many Argentines appear willing to endure short-term pain, hoping for long-term stability. Political scientist Sebastián Mazzuca compared the situation to putting out a fire: while the process has caused injuries, it has prevented greater destruction. These "injuries" include severe cuts to public spending, university budget freezes, and the closure of cultural and scientific institutions. Milei's warnings that conditions would worsen before improving seem to have tempered public outrage, and early signs of economic stabilization have lent credibility to his approach.
Internationally, Milei has cultivated alliances with influential figures like Donald Trump and Elon Musk, leveraging their support to bolster his agenda. These alliances could bring benefits such as increased foreign investment and access to technological advancements. He recently met with them at Trump's Mar-a-Lago club and participated in a conservative conference in Buenos Aires, where he railed against socialism and celebrated his economic reforms.
As Milei enters his second year, the challenge remains to balance his bold reforms with the social and political risks of his radical agenda. While early signs of recovery are encouraging, much depends on securing fresh financing and navigating the nation's massive $44 billion debt to the IMF. Whether Milei can sustain this momentum and fulfill his vision of a freer, more competitive economy remains to be determined. The potential long-term effects of his policies, such as the impact on future generations and the sustainability of the economy, are also important to consider.
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