by Argentina is historically a country of failed governments, economic collapse and debt default. But it is remarkable that there are signs that – against all odds – liberal President Javier Milei’s bold, free-market reforms are working.
With inflation falling, interest rates falling, and the Pes on fire in one market, Milei is already proving the left-wing global economic establishment – addicted to ever-increasing and endless government deficits – wrong. Indeed, it may provide a template for other countries to escape zero growth.
First, what has changed in the country: inflation has fallen to 11pc and Milei predicts it will fall further. Although it is a monthly figure (this is Argentina after all), price increases may be coming back under control after rising over 300pc a year.
Last week, Milei announced that the country had recorded its first quarterly budget surplus since 2008, a modest 0.2pc of GDP, but still an impressive achievement in such a short space of time, especially for a country running deficits for 113 of the countries. 123 years ago.
Then, earlier this week, the central bank, which Milei has yet to end as promised, cut interest rates for the third time in three weeks. Although they are still at a very interesting 50pc, that will start to affect the economy very soon. Investors have started to take notice.
According to Bloomberg data, in the blue chip swap market the peso was the best performing currency in the world in the first quarter of this year, and the bond markets are also rallying.
It could also get better in the coming months. With prices stabilizing, and currency appreciating, investment should begin to flow again into a country that is rich in natural resources and highly competitive on wage costs.
If Milei can make good on his promise to unlock the country’s vast oil and shale gas reserves – using technologies that are safe and successful in the US – then the economy might even start to boom.
If so, Argentina would be defying a global economic establishment that would have given way to more government, more regulation and rising deficits.
We continue to be lectured, especially by the shadow chancellor Rachel Reeves, and by President Biden and his colleagues in the United States, on the need for an active state, an industrial strategy, and more borrowing to pay for investment, and that regulation is. the key to industrial and economic leadership, not its enemy.
Meanwhile, the IMF has too often been a huge cheerleader for Argentina’s failed administrations in the past, extending the largest loans in its history to the country.
Upon Milei’s election, he was dismissed as a loner who would be removed from office within months, if not weeks. In proving that narrative wrong, he would show that even after the short-lived disaster of Liz Truss’s government, free market reform is far from impossible.
So how is it on the way to deliver such a shock to the old economic orthodoxy? Basically, he got three big calls right.
At first, even without a majority in parliament, he was ruthless. Entire government departments were shut down overnight, regardless of the immediate consequences. The Ministry of Culture was abolished, and so was the anti-discrimination agency, and the state-owned news service. Until last month, he revealed plans to fire another 70,000 state employees.
Milei has made no attempt to gradually cut back, to control budgets, to relieve people with early retirement, or to freeze hiring. Instead, he has given the state machinery a ‘chainsaw’, as he promised, making huge savings in the process.
Next, it was bold. The president massively devalued the economy on day one, taking the financial victory to the fore, and then tore up rent controls, price restrictions and state subsidies. He suspended workers’ rights, reduced maternity leave and severance pay, and allowed companies to fire striking workers.
He ended fuel subsidies, although it meant a temporary spike in inflation. Sure, there is some short-term pain, but the results are becoming clear now.
Rents, for example, are falling by 20% a year as landlords, free from controls, put more supply on the market, instead of withdrawing it as they do in countries where the price is set by the government.
Finally, Milei never stopped arguing. It promotes freedom, liberalization and a smaller state with a messianic zeal.
Many of the measures he took may have been rough, but the president did not try to dismiss that, instead patiently and persistently explaining why the reforms are justified, and how they will create greater prosperity for everyone in the long run.
Much of the developed world, and the UK in particular, is gradually sliding into stagnation like Argentina before Milei came along.
Governments are caught up in subsidies and price controls, trying to buy their way out of every challenge with higher spending. Deficiencies are allowed to fester, with no meaningful plan to bring them down again. Corrupt, godly capitalism is allowed to emerge, which eliminates competition.
But the Argentine leader is providing a blueprint for how to break free. The global economic elite continue to lecture us on why we need more government and a more powerful state despite the lack of respect for results. Argentina is rising to the challenge in dramatic fashion.
It is possible that it is just starting to work.
