Milei and the Argentine rebirth
Inflation plummets and poverty declines as encouraging signs emerge for the libertarian government of Milei, which relies on austerity and liberalisation to revive Argentina’s economy.
In November 2023, Argentina was on the brink of economic collapse: annual inflation at 211.4 per cent, poverty at 41.7 per cent (almost 20 million people below the threshold), a 50 per cent devaluation of the peso in August alone, and a deep crisis of confidence in politics.
The presidential runoff pitted Sergio Massa, a Peronist exponent of the outgoing government and Minister of the Economy (the Peronists are a political movement born around the figure of Juan Perón, with nationalist and socialist positions now considered centre-left), against Javier Milei, a libertarian outsider who denounced the “socialist disease” of a country imprisoned for decades in statist clientelism.
The idea that Milei could win seemed utopian: with no party machine, no political experience, against an entrenched system. Yet he won by a margin of over 10 points, inheriting a country in desperate straits. In his first speech he did not promise miracles: “There is no more money” (“No hay plata”) was his programmatic statement.
The severity of the legacy and catastrophic predictions
The situation that Milei found was a real minefield. Massa, in order to gain support, had financed public spending with uncontrolled money printing, fuelling inflation. The opposition accused the minister of sacrificing stability to win elections.
On the eve of the vote, over 100 economists (including Thomas Piketty and Branko Milanovic) signed an open letter in the Guardian warning that a Milei government would bring “devastation” to Argentina. Stabilising the country with those indicators seemed, by many accounts, impossible.
But a year and a half after taking office, the balance is very different from what was feared.
Why Argentina might switch to the dollar
The stabilisation plan: austerity, liberalisation and fiscal discipline
Milei initiated a shock programme: drastic cuts in public spending, redundancies in the state sector, abolition of subsidies and inefficient bureaucracies. The first goal was to reduce the primary deficit to zero, eliminating the need to finance the government by printing money.
It liberalised the economy, removed price controls and addressed the issue of fixed exchange rates. In April 2025, as part of a $20 billion deal with the IMF, he removed the controlled exchange rate regime, which, while containing nominal inflation, prevented the accumulation of hard currency reserves.
Many analysts feared that this would trigger another inflationary wave. Instead, the government managed to minimise the impact of the devaluation on prices through restrictive fiscal and monetary policies and incentives to attract dollars to the legal market, such as tax breaks to agricultural exporters.
The results: falling inflation and recovery of the peso
Recent data surprised even the most sceptical observers. In May 2025, monthly inflation fell to 1.5%, the lowest in five years. In December 2023, at the start of Milei’s tenure, it had been 25.5% per month.
Annual inflation is still high at 43.5 per cent – one of the highest in the world – but down dramatically from 211 per cent in 2023.
According to economist Ramiro Blazquez Giomi (StoneX), the government has “kept to a minimum” the pass-through of the devaluation to prices, consolidating the peso’s credibility. However, the stronger exchange rate has side effects: it penalises the competitiveness of agricultural exports and risks weighing on domestic economic activity.
Social signals: poverty falling, but consumption still weak
In just over a year and a half of government, Javier Milei has imposed a programme of fiscal austerity, cuts in public spending and curbing the monetary base to combat galloping inflation. The strategy has led to a marked drop in inflation and a recovery of the economy, with GDP growing and real wages rising. On the social front, statistics show a marked improvement: poverty, which had reached 52.9 per cent in the first half of 2024, fell to 38.1 per cent in the second half of the year and continued to fall, reaching 31.7 per cent in the first quarter of 2025, the lowest since 2018. According to UNICEF, about 1.7 million children have been lifted out of poverty since Milei has been in government.
However, not everything is resolved: GDP growth has stabilised in recent months and consumer spending in several sectors remains at recessionary levels. However, the IMF forecasts a rebound of 5.5% of GDP in 2025, after the deep recession of 2023. Although macroeconomic stabilisation and the strengthening of private consumption have fostered these improvements, challenges remain related to the sustainability of adopted policies and the social effects of cuts.
The knot of foreign exchange reserves
A structural problem remains: the scarcity of dollars to pay foreign debt. The IMF has already granted an extension on the target to increase reserves by USD 4.5 billion. Milei refuses to accumulate dollars by printing pesos, so as not to fuel new inflation.
To strengthen the reserves, the government concluded a USD 2 billion repurchase agreement (repo) with international banks, issued USD 1 billion in bonds on foreign markets, and uses the fiscal surplus to buy currency.
A political gamble ahead of the elections
These economic results improve Milei’s electoral prospects ahead of the mid-term elections in October 2025. His government has staked everything on price stability as a message to a people exhausted by chronic inflation.
Yet the game is not over. The cooling of economic activity and the strength of the peso could erode the support of productive sectors and popular segments that already suffer from reduced consumption.
Conclusion
Against all dire predictions, Milei’s strategy – of fiscal discipline, spending cuts, liberalisation and a halt to money printing – has reduced monthly inflation to a five-year low and stabilised a country that seemed ungovernable.
Argentina is not yet out of the tunnel, but it has taken a direction that many considered impossible.
Sources: The daily economy – Financial times – Bloomberg
