The first foreign leader to meet Donald Trump after his victory last November was Argentina’s president, Javier Milei. The affinity is obvious: both are political outsiders united by extreme-right rhetoric and a penchant for anarchic capitalism. Mr Milei promised a war on bureaucrats, brutal public spending cuts and sweeping deregulation of Latin America’s second-largest economy. Predictably, the outcome has been devastating: a recession plunged more than half the country into poverty within the first six months of 2024.
Mr Milei did not so much win the last election as the previous government lost it. When voters went to the polls in October 2023, monthly inflation stood at around 8%, fuelling frustration with the established parties and anxiety about the future – sentiments Mr Milei skilfully exploited. After his victory, monthly inflation soared to 25% before dropping back to under 3% in November. As a devotee of Milton Friedman, Mr Milei might claim his public sector cuts were painful but necessary. This is far from the truth. The reality, as the economist Matías Vernengo notes, is that Mr Milei devalued the peso, triggering a spike in domestic prices while using currency controls to keep a lid on further inflationary pressures.
The irony of deploying state intervention while championing the free market is lost on Argentinians struggling to survive. As our correspondents reported last week, there has been a very high social cost attached to Mr Milei’s austerity programme of slashing services and jobs. Falling real wages have left many unable to afford health insurance, further straining underfunded public hospitals. Violent protests against these measures rocked Buenos Aires this summer. The economy is tentatively recovering from Mr Milei’s shock therapy. But more unrest is likely if living conditions don’t improve.
In the short term, Mr Milei’s ability to forestall a backlash hinges on external factors. Argentina’s $44bn loan from the International Monetary Fund (IMF) is running out, and the government is seeking additional funds to ease currency controls without triggering a peso sell-off. Such a scenario could reignite inflation and damage Mr Milei’s popularity ahead of key congressional elections. Despite lauding Mr Milei’s state-shrinking, the IMF remains wary of its dollars being used to prop up the peso – a tactic used by Argentina before. Since its 2018 financial crisis, Argentina has relied on IMF bailouts and, increasingly, loans from Beijing, becoming Latin America’s largest recipient of Chinese commercial funds. This dependency poses a geopolitical challenge, with pressure from Mr Trump to disengage from China – a move Mr Milei might find hard to resist.
Mr Milei’s policies have inflicted significant pain with little visible benefit. Consumer prices rose by 160% in his first year in office – roughly the same increase recorded during the final year of the previous government. Rather than representing a break with the past, Mr Milei’s agenda echoes those of earlier rightwing administrations, whose members now sit in his cabinet. As economic historian Michael Bernstein observed, “laissez-faire” often translates to “laissez-nous faire” – letting corporate interests operate with minimal oversight. Such policies might enrich a select few in Argentina – or Trumpian America – but for the majority, they lead to greater hardship and inequality. Mr Milei’s bet is that he can fool enough people into leaving his mess for his successor to clean up. It’s a cynical, short‑sighted wager that neglects the need for meaningful reforms in Argentina.
