Has Argentina’s libertarianism gamble worked?

The promise of radical reform and greener pastures saw libertarian economics professor Javier Milei elected as Argentina’s President in 2023. But how has his push for radical reform fared during his first 12 months?

 
 

One hundred years ago, Argentina, a country blessed with vast natural resources, was arguably one of the wealthiest nations in the world. But after the Great Depression, successive governments embarked on unsustainable, populist spending strategies which have resulted in years of political and economic instability, aggravated by corruption, record inflation and the country becoming the International Monetary Fund’s (IMF) biggest debtor (see Fig 1).

With a repressed economy and 57.4 percent of the population (27 million people) living in poverty, the country was crying out for change. Enter revolutionary, libertarian, economics professor, Javier Milei.
“We are the only political force with a specific plan to end inflation, unemployment, health problems, education, food, housing and all the debts Argentine democracy owes the Argentines,” Milei announced.

But what is libertarianism? According to the Encyclopaedia Britannica, libertarianism is “a political philosophy that takes individual liberty to be the primary political value.” In other words, people are free to make choices about their own lives and are solely responsible for the choices that they make. And the basic foundations on which libertarianism sits are “private property, markets free from state intervention, free competition, and the division of labour and social cooperation, in which success is achieved only by serving others with goods of better quality or at a better price.”

Implementing a drastic vision
Milei’s election manifesto focused on drastic reforms aimed at ending Argentina’s economic instabilities, specifically completely overhauling the state, cutting public spending by 15 percent of GDP and slashing taxes, ‘dollarising’ the economy to stabilise inflation and abolishing the central bank, shutting down or privatising state-run companies and bodies that he argued “serve as shelters for people receiving salaries without contributing meaningful work,” and cutting red tape for businesses.

Positioning himself as an outsider, this anti-establishment rhetoric resonated strongly with the disillusioned electorate, especially those outside the major metropolitan areas, who felt neglected by the political elites and were fed up with the status quo and the legacy policies of former President, Juan Perón. They saw Milei’s vow to dismantle a “corrupt and inefficient state” and his promises of drastic economic reform as a beacon of hope against soaring inflation and declining standards of living. While his victory was overwhelming, winning in 21 out of the 24 provinces, and beating his nearest rival by 55.7 percent to 44.3 percent, demographically, his support varied. For younger voters who felt their future was being put at risk by the ongoing economic crisis, his libertarian, free market ideas were particularly appealing, with the strongest support coming from younger men, along with considerable support from middle- and upper-class voters. However, the female electorate were less supportive, as many were more concerned about his socially conservative stances on issues like abortion.

Painfully slow progress
But after a year in office, has much changed? Unfortunately, not yet. Economies are not like Broadway productions, and despite a change in government, no star will be born and nothing miraculous will happen overnight, however radical the promises. That said, days after his inauguration, Milei set to work reducing the size of the state and tackling the country’s fiscal challenges which he saw as vital to achieving his goal of a budget surplus.

On the fiscal front, he reduced the number of cabinet ministries from 18 to nine, devalued the peso by 54 percent, cut 30,000 public jobs, slashed state subsidies for fuel and transport, and suspended all new public works contracts. This resulted in a Q1 2024 budget surplus of 275bn pesos ($284m), the first since 2008, and one that amounted to 0.2 percent of GDP. At time of writing, Argentina had recorded a government budget surplus for every month in 2024. And while Milei has, for the time being, had to scale back on his election promises to dollarise the economy and abolish Argentina’s central bank, these fiscal moves have also been supported by the IMF, who have released $4.7bn in loans.

Additionally, this shift to more conservative economic policies has encouraged investor confidence, with Argentina’s international bonds due in 2041 rising by seven percent immediately after his election, and, at the index level gaining 60 percent by March 2024.

The currency devaluation and austerity measures have contributed to sinking the economy further into depression

When he took office, Milei did warn that things were likely to get worse before they got better, and despite these apparent initial successes, he has still faced significant challenges in his first year. Core inflation rate peaked at 300 percent in March 2024, and even with subsequent monthly drop-offs, still remains over 200 percent.

Poverty rates have increased significantly, with the Instituto Nacional de Estadistica y Censos Republica Argentina (INDEC) reporting that over 60 percent of Argentines now live in poverty, up from 41.3 percent in the second half of 2023, with the cost of a total basic basket (CBT), food and non-food essentials, seeing a year-on-year increase of 230.1 percent, according to August 2024 figures. And if that wasn’t enough, the currency devaluation and austerity measures have contributed to sinking the economy further into depression, with government figures released in September showing a third quarterly contraction.

Frustrated with Milei’s cuts to welfare programmes and the closure of public services, such as the state news agency, and with no end to their suffering, Argentina has seen widespread social, and sometimes violent unrest, particularly from marginalised communities and left-wing groups.

Constant challenges of opposition
But Milei and his policies are not solely to blame. A lack of support from hostile lawmakers in both houses of the Argentine government has been the biggest roadblock to his planned reforms. For while he won the presidential vote handsomely, his party, La Libertad Avanza (LLA), won only 15 percent of the seats in the Chamber of Deputies, and just seven out of the 72 seats in the Senate.

Ten days after taking office, in December 2023, he issued an emergency decree (DNU 70/2023), to fast-track the changes he considered necessary to “consolidate economic stability” by side-stepping the Chamber of Deputies, although it still required Senate approval. The decree contained over 300 law amendments including facilitating the privatisation of state-owned enterprises, deregulating energy, transportation, healthcare, and other sectors, abolishing price control, and removing workers’ rights (including their right to strike). This sparked large-scale protests from the electorate, along with a fierce legal and political backlash. The Senate rejected DNU 70/2023 in March 2024, with Milei arguing that senators were more concerned with protecting their own interests rather than improving Argentina’s prospects, and insisting the decree remain in force unless it was rejected by the lower house, or declared unconstitutional by the courts.

In contrast, his Omnibus Bill, also introduced in December 2023, was a much broader legislative reform package, with over 600 articles that sought to codify Milei’s reforms aimed at overhauling Argentina’s economy through deregulation, privatisation and fiscal discipline. It sparked intense debate, and in its initial form was rejected by both chambers. It also prompted a 12-hour general strike in Buenos Aires in January 2024 just 45 days into Milei’s presidency, to protest against the proposed reforms, coordinated by the umbrella union, the General Confederation of Labour (CGT). Following significant revisions, the bill passed through the Chamber of Deputies in late April, and although it remained focused on reducing the state’s role in the economy, aligning with Milei’s libertarian philosophy, the number of articles were reduced to just over 300 and some of the measures were softened, especially those involving the labour market. However, negotiations continued in the Senate amid a volatile political climate, which led to a political stand-off. To gather support, Milei introduced the May Pact, a 10-point agreement promising further tax reforms and fiscal balance across the provinces. The Senate finally passed the slimmed-down Omnibus Bill in June, and the May Pact was finally signed in July.

In September, Milei set out his 2025 budget proposals. Built around a zero-deficit approach to stabilise the economy, it focused on understanding how much money is available before allocating funds, but to achieve this he also proposed significant cuts to public spending, particularly on social programmes and subsidies, which sparked concern from opposition parties and social groups. The budget also forecast a dramatic drop of annual inflation from the current 230 percent to 18.3 percent by the end of 2025, with monthly inflation dropping to one percent, along with a five percent GDP growth forecast for 2025, despite Argentina currently being in recession. The administration believes these austerity measures and fiscal discipline will help the economy recover faster.

Don’t cry for Milei, Argentina
Opposing parties have strongly criticised the proposals, accusing Milei of further hurting the working class with significant public spending cuts, while investors have responded cautiously to the proposal with many viewing it as a step towards restoring market confidence in Argentina. But public reaction has been mixed. While Milei’s supporters back the proposals, there is widespread concern about the social impact of big spending cuts.

Overall, in his first year, Milei has made significant waves with his libertarian agenda, but with no government majority, has faced considerable resistance from opposing parties. Unfortunately, his early popularity with the electorate has also waned, resulting in public discontent. For the people of Argentina change cannot come fast enough, and hopefully, given the chance, Milei’s reforms will have the desired effect, and things will indeed, get better.