Your columnist has never disguised the fact that Javier Milei, in his view, is one of the boldest political leaders of our time. Mr Milei was elected President of Argentina, in November 2023 and, unlike his peers across the world, his victory speech truthfully outlined the forthcoming pain his reforms would unleash on his fellow Argentinians. A year later Argentina, whilst not out of the woods, is on a path of recovery with rising levels of investor trust and tamed inflation.
Mr Milei assumed office where the effects of fiscal irresponsibility, by populist Peronist governments, had reduced what was once a rich nation into the ranks of the third world, amid poverty rates of 50%. With inflation at 211%, practically no growth and reckless restrictions that created price distortions, Argentina has been in a miserable situation. It took both courage and radical reforms to change course. Mr Milei, a self-declared libertarian, believes in free markets, soft touch regulation and expresses his hatred for a big state. Instead of spinning yarns, brutal public truth-telling has been his style. Argentina’s troubles were the result of policies that handed out patronage, politicians who lied and a central bank that senselessly printed money. To control inflation, the Peronists took to a bundle of price controls and multiple exchange rates. Mr Milei, elected with a mandate to fix things, cut public spending by 30%, halved the number of ministries and swung the fiscal deficit to a surplus. He slashed red tape, liberating markets from housing rentals to airlines. The results are encouraging. Inflation has fallen from 13% month on month to 3%. The central bank is no longer printing money and an assessment of a risk of default has halved.
Mr Milei’s main economic argument is simple: the public sector in Argentina is too big as it crowds out private initiative. In short, there are too many Argentines living from government handouts and public sector jobs, the economy has been overly regulated and that regulation in turn strangles private enterprise. The history of Argentina and the IMF has been a case study, with over 21 support programs. To introduce discipline in economic management, Mr Milei had initially intended to fully dollarize the economy, doing away with the Argentine peso and abolishing the central bank. On assuming office, he discarded the idea because of scant foreign exchange reserves and at the recommendation of his advisors.
The big risk for Mr Milei’s government is economic recovery. This will determine whether he is politically successful. Without a legislative majority, he is reliant on opposition law makers and their support is fragile. When a recovery begins, it should gain momentum as pent-up entrepreneurship kicks in and a virtuous economic cycle unfolds. A recovery would also allow the government to distribute the pain of the fiscal adjustment more evenly across society. The initial adjustment has hit the working and middle classes hard because that is where the bulk of government spending was concentrated. Ultimately, Mr Milei’s political future will depend on his ability to adapt his strategy to maintain legislative alliances and manage public expectations. If he cannot deliver progress soon, the opposition may gain ground, and the risk of further protests could lead to instability, threatening the continuity and success of his administration’s efforts.
Argentina is the quoted example of how populist policies, large deficits, entitlements and over-regulation can destroy a nation state. The jury is out as to whether Argentina can succeed. If it does, it will be after an entire generation of Argentinians suffer immense pain for a better future. Things can go either way for Mr Milei. But the story of Argentina should serve as a reminder to populist policies across the world. They have the habit of creeping in and then settling down permanently. Politicians, at least those that genuinely care for their country, should take note.