Milei Has Tamed Inflation, but Argentina Still Isn’t Out of the Woods (Bruno Binetti, Dec 6, 2024, World Politics Review)
From the moment he took office last December, Milei wasted no time wielding his proverbial chainsaw, slashing public spending by nearly a third and erasing a fiscal deficit that had exceeded 5 percent of GDP. His reforms included halting budget transfers to provincial governments, dismissing over 30,000 public sector employees, cutting subsidies for public utilities, canceling most public works projects and reducing pensions by around 7 percent.These drastic measures were effective at cutting public spending, but they came at a cost. A steep devaluation of the peso triggered short-term inflation, with prices surging by 25 percent in December 2023 alone. The economic fallout was severe: In the first six months of Milei’s presidency, an already deep recession worsened; wages lost significant purchasing power; funding for national universities plummeted by 30 percent; and poverty rose to 53 percent, up from 42 percent.
Despite these challenges, Milei’s approval rating remained remarkably stable, reflecting both the public’s disillusionment with traditional political elites and the gravity of the economic crisis he inherited. The chaotic Peronist administration of Milei’s predecessor, former President Alberto Fernandez, left the country teetering on the brink of hyperinflation and economic collapse. Many Argentines viewed Milei as their best hope for salvation, accepting the pain of his adjustment policies as a necessary cost to avoid catastrophe, even as they doubted his assurances that the burden would fall solely on the “political caste.”
In the end, their resilience appears to have been rewarded. Monthly inflation steadily fell from 20 percent in January to just 2.7 percent in October, a remarkable achievement for a nation long haunted by runaway prices. This newfound stability has fueled a modest recovery in real incomes and restored some ability for households and businesses to plan for the future. The gap between official and black-market exchange rates has also narrowed dramatically, from over 200 percent to less than 10 percent. With GDP projected to grow by 5 percent in 2025, Argentina is poised to rank among Latin America’s top-performing economies. Meanwhile, the government expects forthcoming data to confirm a significant drop in poverty, potentially bringing the rate well below 50 percent.