Argentina, a country that was once among the wealthiest in the world, has found itself facing serious economic challenges over the past 25 years. Then, a year ago, the provocative libertarian economist Xavier Miley was appointed as its new president.
Known for his flamboyant personality and radical ideas, Xavier Miley is one of the most polarizing figures in global politics, celebrated as a visionary reformer by some and dismissed by others.el loco” (“crazy”). He pledged to take “chainsaw” to the state and promote a free-market approach.
His pro-capitalism stance extends to promoting the culture wars. Last month, he fired his foreign secretary for voting with 186 other countries against the US embargo on Cuba at the United Nations. Only the US and Israel voted against it. He withdrew Argentina’s delegation of negotiators to the UN climate summit in Baku, claiming that human-caused climate change is “a socialist lie”.
Yet Miley attributed her 2023 victory to Argentina’s deep economic crisis. It was an economy suffering from the world’s third-highest inflation rate, at 211% year over year, a poverty rate north of 40% (now rising even higher), and an economy that had been in crisis for decades.
The roots of Argentina’s economic problems run deep. Once one of the richest countries in the world due to its fertile pampas plains, its prosperity was built on agricultural exports and integration into global markets.
Political instability, excessive protectionism and fiscal mismanagement hampered its momentum. Peronism, a political movement based on economic freedom and social justice, has dominated Argentine politics for decades. Although it lifted up the working class, critics argue that it reinforced inefficiency and dependence on the state.
By 2023, Argentina’s crisis had reached unprecedented levels and the peso had lost most of its value.
Argentina turned to Meili, an outsider, who promised to dismantle the state’s bloated bureaucracy, privatize key sectors, and adopt policies rooted in liberal principles.
Extensive improvements and painful reductions
Now in power for a year, he has cut government spending by a third, eliminated price controls and cut subsidies on energy and transportation. Last December they devalued the peso by 54%.
About 30,000 state jobs were cut, as well as more than half of government ministries. Miley also allowed inflation to affect the real value of pensions and salaries. This has generated fiscal surpluses, but also deepened the country’s worst economic crisis in two decades.
The result is unprecedented levels of poverty. As the cost of food and basic products increased, about 53% of Argentines now live in poverty – up from about 42% in 2023 and the highest level in 30 years. Another 15% of the population is in “extreme poverty”. An additional 5.5 million Argentines became poor during Miley’s first six months in office.
Despite the pain, Miley’s approval rating remains steady at around 50%. His success appears to have depended on his continued attacks on the country’s establishment and labor unions. The only large-scale protests occurred when Miley cut funding to free public universities. Argentina seems to have accepted the doctor’s prescription.
Miley’s major legislative victory was his controversial “omnibus” reform bill. Its basic objective was to cut government expenditure, privatize public enterprises (regardless of whether they were profitable or not) and implement a zero-deficit policy.
Although the bill was scaled back, economic indicators improved significantly. Monthly inflation fell to 2.7% in October, from a high of 26% last December. The peso has strengthened significantly and is now overvalued, hurting exporters and raising the possibility of devaluation – and with it, more inflation. Argentina’s country risk index (which measures the riskiness of investing in a state) has declined significantly.
But the economy is not out of trouble. Growth remains elusive – the IMF forecasts a 3.5% economic contraction this year. Growth of 5.2% next year would only bring per capita GDP, a measure of personal wealth, back to where it was when the COVID lockdowns ended in 2021. It will not be easy to reduce inflation further, as it is hovering around 3%. Monthly level since July.
Meanwhile, Miley’s 2025 budget proposal aims for a budget surplus of more than 1.3% of the country’s GDP, which would require further spending cuts. But demands to restart stalled public works and boost pensions and salaries will inevitably intensify next year.
And Argentina still has heavy capital controls, making it difficult for investors to move money out of the country. They will think twice before investing.
Meanwhile the opposition is waking up. Miley’s veto of a bill to increase the university budget drew 250,000 people to a protest in November, leading some to suggest that the president had miscalculated.
Former President Cristina Fernandez de Kirchner, still Argentina’s leading leftist, is set to take over the leadership of the main Peronist party ahead of next year’s snap elections. Although his influence has diminished greatly, he still enjoys reasonable approval ratings. Kirchner and Miley are both polarizing figures, so it’s unclear whether their return will help the left.
Donald Trump’s re-election could prove to be Miley’s best card. While Argentina is a minor trading partner, Miley leveraged its ties with the US president-elect to persuade the IMF to claw back the remaining US$44 billion (£35 billion) loan accrued in 2018 during Trump’s first term in office. Will take advantage of. An additional US$10 billion is needed to shore up the central bank’s international reserves, which are critically low.
This source of money will be important for Miley to begin removing capital controls. Only then can economic stability translate into sustainable development.
,Author: Nicholas Forsons, Professor of Management and Co-Director of the Center for Latin American and Caribbean Studies, University of Essex)
,disclosure statement: Nicolas Forsons does not work for, consult, own shares in, or receive funding from any company or organization that would benefit from this article, and has no relevant affiliations beyond his academic appointment. not disclosed)
This article is republished from The Conversation under a Creative Commons license. Read the original article.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
