London/Bogota/Buenos Aires
CNN
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Javier Milei swept to power in Argentina a year ago on a ticket to tackle chronic hyperinflation and overhaul the long-suffering economy. In one regard — slashing the size of the state — he has proven so accomplished that Donald Trump’s government efficiency tsars want to replicate his approach.
Under the chainsaw-wielding Libertarian economist,the government has posted rare consecutive monthly budget surpluses and inflation has fallen sharply — “better-than-expected results,” according to the International Monetary Fund.
Investors have also cheered the changes: argentina’s flagship Merval stock index, wich tracks around two dozen of the country’s most valuable listed companies, has soared almost 140% this year.
But the budget cuts have come at a cost to ordinary Argentines.The poverty rate has jumped above 50% from an already high level, the economy, the third largest in Latin America, has slid even deeper into recession and unemployment is on the rise.
The International Monetary Fund sees Argentina’s gross domestic product shrinking by 3.5% this year, following a 1.6% contraction last year. Projected growth of 5% next year will, in simple terms, just about reverse those declines.
“If you look at inflation and the fiscal situation, that has been a huge and remarkable success,” saeid Hans-Dieter Holtzmann, the Buenos Aires-based project director for Argentina, Brazil, Paraguay and Uruguay at the Friedrich Naumann Foundation for Freedom, a liberal German think tank.
Milei — who likes to brandish a chainsaw to symbolize budget cuts — has slashed the number of government ministries to eight from 18 and laid off more than 30,000 government employees so far. He has also scrapped energy and transport subsidies, halted virtually all public infrastructure projects, ended most subsidies to local governments and frozen public sector wages and pensions.
Such as, in November 2023, a bus ticket in Buenos Aires cost only around 70 pesos (7 cents) thanks to subsidies, a price too low to cover running costs, let alone investment in transport infrastructure. Public transport prices have since increased tenfold, Holtzmann noted, making a daily bus ride unaffordable for many Argentines.
Many of these cuts were necessary to rein in a bloated, inefficient and spendthrift state. but the adjustment has proved painful in a country where roughly every 10th person is employed in the public sector.
Yet, despite the harsh consequences of his policies, polling shows sustained public support for Milei.
Milei “said that things would get worse before they got better, and only now we’re seeing they are getting better… so people trust him,” said Matteo Maffia, a 33-year-old communications consultant from the outskirts of Buenos Aires.
This newfound stability is benefitting Maffia’s work too,with clients committing to longer-term contracts. “People are planning, they are considering what investments to make, whereas before you basically just worked day-to-day.”
Alongside efforts to repair public finances, Milei — a self-described anarcho-capitalist, who advocates for minimizing the size of the state — has slashed red tape.
He added that Elon Musk, the co-chair of trump’s new Department of Government Efficiency, which aims to cut “wasteful” expenditure and “excess” regulations, is a fan of his “chainsaw approach” to government bureaucracy and wants to copy the model over to the United States.
That would align Musk with his co-chair Vivek Ramaswamy, who wrote last month on X: “A reasonable formula to fix the US government: Milei-style cuts, on steroids.”
Milei has also been working to attract more business investment, crucial to boosting economic growth.
A new law that offers incentives to invest, including generous tax breaks, coudl attract as much as $50 billion in foreign investment, according to the Argentine government’s estimates quoted by KNG Securities, a financial firm.
But capital controls, which limit the flow of foreign currency into and out of the country, are giving investors pause.
The government also continues to set the exchange rate: Having shelved Milei’s campaign pledge to dollarize the economy, it devalued the peso by 54% against the US dollar last December and then by another 2% each month as. Despite this, the currency is still overvalued, according to economists.
“One of the key underlying issues of Argentina’s woes (is) the overvalued peso, which is eroding Argentina’s external competitiveness,” Kimberley Sperrfechter, emerging markets economist at consultancy Capital Economics, wrote in a recent note.A weaker peso would make the country’s exports more attractive to foreign buyers.
Many foreign investors are waiting for further evidence of Argentina’s economic turnaround before making long-term commitments. On that front, Milei’s volatile temperament could undermine his ability to push further reforms through Congress, where his party does not have a majority in either chamber.
“Foreign companies considering Argentina as an attractive location for investment are irritated by Milei’s constant diplomatic skirmishes,” Holtzmann of the Friedrich Naumann Foundation said in a recent note.
But a blockbuster free trade agreement with the European Union — reached Friday between the bloc and Argentina, Brazil, Paraguay, Uruguay and Bolivia — could improve argentina’s relations with its neighbors and Europe, helping the economy.
“It was difficult to vote for him at first… but I see that more and more Argentines are realizing every day that his plans are working,” said Flor Maffia, a retired school teacher. “There’s a new wind of hope in Argentina.”
“There’s still so much to do but, if they continue working as they are, this country will be unrecognizable in five to eight years compared with where it was just a year or so ago.”
How have Javier Milei’s economic reforms impacted public sentiment and trust in the government among Argentines?
Time.News Interview: The Consequences of Javier Milei’s Economic Policies in Argentina
Editor (Time.News): Welcome, Dr. Holtzmann. Thank you for joining us to discuss the radical economic reforms initiated by Javier Milei in Argentina. Yoru insights as the project director for the Friedrich Naumann Foundation are invaluable. Let’s start with the overarching picture. How would you assess the immediate effects of Milei’s policies on Argentina’s economy?
Dr. Hans-Dieter Holtzmann: Thank you for having me. The impact of Milei’s policies has been profound and multi-faceted. On one hand, we’ve witnessed a sharp decline in inflation and consecutive monthly budget surpluses, which are commendable achievements after years of economic turmoil.However, this economic stabilization has come at a substantial cost to many Argentines.
Editor: It sounds like there’s a knife-edge balance between economic recovery and social well-being. While inflation has dropped and the stock market is thriving, poverty has surged beyond 50%. How do you interpret this dichotomy?
Dr. Holtzmann: Precisely.Milei’s aggressive approach—cutting ministries, slashing subsidies, and reducing public spending—has proven effective in stabilizing the macroeconomic indicators. Yet, these measures have disproportionately affected the most vulnerable populations. Many people now find basic necessities, like public transport, increasingly unaffordable. These budget cuts were necessary to streamline a bloated state, but they have undeniably exacerbated the suffering of countless citizens.
Editor: Milei is often described as a “chainsaw-wielding” economist. How have these dramatic cuts been perceived by the broader public?
Dr. Holtzmann: Interestingly, despite the pain, there’s been sustained public support for Milei. Many Argentines recall the hyperinflation and economic collapse that preceded his tenure, and they seem willing to endure short-term hardship for a chance at long-term recovery. As one young communications consultant put it, people are starting to plan for the future rather than merely getting by.This suggests an emerging trust in Milei’s vision.
Editor: The psychological aspect of economic governance is fascinating. It appears Milei has effectively conveyed a narrative that while things will get worse initially, they will ultimately get better. Is this a typical phenomenon in economics?
Dr. holtzmann: Yes, the expectation of future betterment can drive public sentiment and economic behavior. It is critical in times of economic distress. Though,the question is: how many setbacks can the population endure before support wanes? The immediate effects of Milei’s policies—like the tenfold increase in public transport prices—could possibly fuel discontent if the promised improvements take too long to materialize.
Editor: You noted that investors are reacting positively, particularly with the Merval stock index soaring. Does this investment optimism translate into sustainable economic growth,or is it more of a short-term phenomenon?
Dr.Holtzmann: Investor confidence is crucial, and it often hinges on political stability and an environment conducive to business. While the stock market is responding favorably now, the real test will be whether this optimism fosters genuine economic activity—new investments, job creation, etc. The IMF projects a modest growth next year, but long-term success depends on how these changes affect ordinary citizens’ lives and regaining trust in public institutions.
Editor: With the stark rise in unemployment and poverty, do you foresee a point where the social ramifications might challenge Milei’s ongoing reforms?
Dr. Holtzmann: Absolutely. The long-term sustainability of his reforms will depend on addressing social issues, not just economic indicators. If the economic recovery does not translate into tangible improvements in living standards for the broader population, support could erode. It’s imperative for Milei to create a balance between fiscal responsibility and compassion for those most affected by these necessary cuts.
editor: what should we watch for in the coming months that might indicate whether Milei’s experiment is succeeding or failing?
Dr.Holtzmann: Key indicators will include unemployment rates,public sentiment regarding his policies,and any shifts in poverty levels. Additionally, we’ll need to watch how well Milei can transform the initial investor enthusiasm into sustainable business practices that benefit the entire population. It’s a delicate balancing act,and the challenge lies in ensuring that recovery is inclusive.
Editor: Thank you, Dr. Holtzmann, for sharing your insights today. It truly seems clear that while there are glimmers of hope for Argentina’s economy, the road ahead requires careful navigation of both economic and social landscapes.
dr. Holtzmann: Thank you for having me. It will be captivating to see how this unfolds.