Javier Milei’s Austerity and Opposition: The Trials and Tribulations of the Argentine Economy

Dalton Burford, Mar 27, 2024

The chainsaw is the symbol of choice of Argentina’s new president, Javier Milei. This symbol cuts to the core of his libertarian ethos and points to his ambitious plans to prune the oversight of the state in a country long run by left-wing disciples of 1940s and 50s Argentine president Juan Perón. Perónism, Perón’s associated political ideology, is a flexible populism that contains both nationalist right-wing and socialist left-wing elements, emphasizing collaboration between the state, important industries, and labor unions [1]. Due to the fluidity of this label, Péronists have stayed generally popular, with the Wall Street Journal noting that “no non-Peronist president has finished a term since the 1960s” [2].


Therefore, the election of Javier Milei, a former economist and self-proclaimed “hyper-orthodox libertarian,” seems to be an ideological aberration for the country. Indeed Milei’s election is a sharp rightward turn. However, it can be explained by a country that has suffered a near-constant barrage of economic woes for the past two decades, with no apparent solution in sight. Milei has thus branded himself the face of desperate measures, promising to sell off state enterprises, cut regulations, and dollarize the economy. This last measure would involve dissolving the country’s central bank and using the US dollar instead of its own currency, the Argentine peso, thus relinquishing control over its monetary policy. While there is no doubt that the Argentine economy needs a change, Milei seems unable to pass these measures in their entirety due to both well-organized opposition and his own political stubbornness. Even if the measures passed, they would face uncertain chances of ameliorating the economy, as evidenced by Argentina’s own history, and would leave the economy with the new problems of austerity that have already begun manifesting after Milei’s brief time in office.


To Milei’s credit, there is ample reason to believe that drastic steps are necessary. The inflation rate in Argentina has reached 211%, its highest in 32 years [3], the poverty rate was at 57% as of February 19 [4], and Argentina owes more to the International Monetary Fund (IMF) than any other country in the world [5]. Recent history has also borne out the consequences of a more gradual approach to readjusting the economy or gradualist approach. In the late 2010s, Mauricio Macri’s center-right government tried to avoid quickly shrinking the budget deficit, which would entail unpopular cuts to social programs.Instead, the government relied on raising the interest rate to buoy the economy by attracting foreign capital. However, when the US interest rate rose and investments in Argentina became less attractive, the peso’s value fell sharply again, forcing Macri to take out a $50 billion loan from the IMF in June 2018. This loan failed to have the intended life raft effect, and the IMF loaned Argentina $7 billion more only a few months later. Macri’s failure to reign in government spending kept the inflation rate rising while interest rates as high as 70% dampened business spending and caused unemployment to rise as well [6]. Macri was ousted in favor of a Perónist in the subsequent election in 2019. In contrast to Macri, Milei seeks to avoid such half-measures by fully committing to a shock therapy style adjustment to the national economy. 


If this side of recent history illustrates the pitfalls of gradualism in the face of an economic downturn, the previous 2001 economic disaster reveals the risks of the type of severe economic moves envisioned by Milei and feared by Macri. One source close to the Macri administration said that drastic adjustments “would be…typical [of a] rightwing government, which would end up with him leaving the presidential palace by helicopter when it failed” [6]. This comment refers to the aftermath of the 2001 economic crisis in Argentina, a crisis so profound that the accompanying social unrest led to the deaths of more than 20 people in riots and, as the quote alludes to, the departure of President Fernando de la Rua from the executive estate after tendering his resignation only one year into his term [7]. 


The 2001 crisis has its roots in an economic arrangement not unlike Javier Milei’s plan to dollarize the economy, showing the worst-case implications of such a move. In the 1990s, President Carlos Menem pegged the Argentine Peso to be equal to the US dollar, a soft version of dollarization, in response to raging hyperinflation even worse than the inflation Argentina faces today. While initially successful at curbing inflation, the strategy involved relinquishing Argentina’s ability to set its own exchange rate or create discretionary monetary policy. This decision later backfired when the US dollar appreciated in the late 90s, raising the price of Argentine exports and diminishing their competitiveness in the global market. During this period, the government continued to run budget deficits due to high social spending. The consequences of this decision were fully felt when the government was finally forced to raise taxes at the same time as the recession, worsening its effects. In 2001, under President Fernando de la Rua, the economic situation finally came to a head. Persistent budget deficits, the recession, and political opposition resulted in capital outflows from Argentine banks [8]. As Argentinian citizens realized the banking system lacked enough US dollars to cover all corresponding accounts, they triggered a run on the banks [9]. In response, de la Rua limited withdrawals from bank accounts to only $250 a week. This limit led to the previously described pandemonium in the streets that led to police killing more than 20 people during rioting. The upheaval forced the president to resign and flee by helicopter from the Casa Rosada, the Argentine presidential residence. While Milei is trying to eliminate the budget deficits that contributed to the downturn, the havoc caused by the dollar’s appreciation displays how dollarization can cause exchange rate fluctuations dangerously out of sync with the nation’s economy and deprive it of one of its primary weapons against recessions—monetary policy. 


While both historical economic crises are rooted in unchecked deficit spending, the preceding presidents had good cause to avoid cutting social spending. In a country with nearly ⅗ of citizens living in poverty, Milei’s austerity measures will be sure to severely impact the most vulnerable.   Austerity measures in general are designed to quickly reduce government spending which can include cuts to social spending, privatizing state operations, and trimming back the regulatory state. Among Milei’s first moves towards austerity as president was issuing an executive order that halved the number of government ministries, declined to renew the contracts of thousands of government workers, and cut energy and transportation subsidies, leaving many without jobs and raising the prices of everyday costs for all [10]. This impact is reflected in the poverty rate, which increased by eight percentage points, from 49.5% to 57% in just the first month of Milei’s tenure due to these changes as well as his administration’s devaluation of the currency [11]. One former government employee Martín Rodríguez, a 45-year-old father of three affected by the order, says “Everything is 100% worse since Milei won. I’m without a job and everything is so expensive… It’s so hard to make it to the end of the month” [12]. While a single anecdote cannot illustrate the full impact of Milei’s policies, Rodriguez’s story humanizes the hardships resulting from these changes. 


Concerning these costs, Milei admits as much himself, saying, “We know that in the short term, the situation will worsen, but soon we will see the fruits of our effort, having created the base for solid and sustainable growth” [13]. This, however, raises the question of how much worse living conditions can get for Argentinians living on the edge of ruin without Milei facing a precipitous drop in public support. Despite 58% approval ratings after his first month in office, Milei has already faced key opposition in Congress, the courts, and on the streets, hurting his ability to carry out his ambitious platform [14]. In early February, Milei’s omnibus bill which, among other measures, would have approved the sale of all state enterprises as well as delegated more emergency power to the executive branch, was withdrawn by Milei’s own party in Congress. Despite the bill already passing the lower house in an amended form, this move signaled Milei and his party’s unwillingness to compromise on the 650+ article bill after certain stipulations had been rejected in line-by-line voting. Instead of compromising, Milei resorted to digging in deeper along partisan lines, releasing on social media a list of 61 “traitors'' who sank the bill in Congress [15]. This strategy suggests Milei is prioritizing ideological purism over effective politics, as his party only holds 15% of the lower house and 10% of the Senate, making compromise and coalition-building an imperative to pass their proposals [16]. 


On top of his inability to work with Congress, Milei’s austerity platform also faces significant resistance from organized labor in Argentina.  The line-by-line voting that gutted parts of the omnibus bill was, in part, a response to protests in Buenos Aires by prominent labor unions which had called a general strike on January 24th [17]. Unions have remained a solid constituent of Perónist coalitions throughout Argentina’s history and have especially opposed parts of Milei’s labor policies. In a recent union win, courts rejected labor policies included in Milei’s December decree that would have made it easier to fire workers and reduced severance compensations, reasoning that he had overstepped his emergency powers. All of these forces underscore that, despite Milei’s popularity, the severity of his proposals has sparked fierce and well-organized opposition. The greatest obstacle Milei faces at this moment is his inability to pass the most ambitious aspects of his plans through Congress which is compounded by his own uncompromising orthodoxy. Therefore, although he has shown determination with his use of executive power, his reliance on Congress suggests he is unlikely to actualize his austerity platform in its entirety. 


The historical examples of the 2018 and 2001 economic crises together with the present-day policies of Javier Milei paint a complex picture of politics and economics in Argentina. Gradually lowering budget deficits may risk economic ruin while cutting government spending is sure to leave much of Argentina’s population without crucial lifelines. Inflation is eroding the wages and savings of Argentinians, but previous efforts at soft dollarization have had dangerous effects further down the line. These situations serve as testaments to the secondary consequences in macroeconomic policy-making. As each of Milei’s decisions  inevitably create positive and negative ramifications, government administrations and, by extension, voters are forced to choose their national priorities. While Javier Milei has brought about a genuine success in producing Argentina’s first budget surplus in twelve years, this success must be weighed against the suffering that austerity is sure to bring [18]. Consistent budget deficits have been a crucial part of Argentina’s economic miseries for years, but Milei wields his chainsaw indiscriminately by divesting the state of all feasible responsibilities. One such example among the many deregulations included in his broad December decree is the elimination of controls on credit card companies setting limits on late fees and interest rates [19]. This elimination will allow creditors to demand exorbitant rates and fees — another measure that will only further hurt the pockets of Argentinians struggling to get by. 


Two futures exist at the extremes of Milei’s performance. In the first, Milei fails to achieve his goals, implementing austerity measures without improving economic benchmarks, losing popular support, and facing a hostile Congress. Argentina, in this scenario, would continue its economic downturn and seek new solutions. Conversely, in the second scenario, Milei succeeds, soothing the ailing economy with foreign investment won through the assurances of his austerity measures which simultaneously bring inflation under control. While bringing stability to a country that sorely needs it, this scenario would also have its own adverse effects. Argentina would emerge from the sharp pains of the economic crisis with a new ailment of a state prioritizing the free market over its people. While at the present moment, it seems like Milei will be unable to execute the most extreme parts of his platform due to his own unwillingness to engage in typical political bargaining in Congress, which future (or which gradient in between them) will come to pass will depend on Milei’s continued political strategizing, the reactions of the market, and, ultimately, the will of the Argentine people.


[1] “Peronist | Argentine History | Britannica.” Encyclopædia Britannica, 2019. https://www.britannica.com/topic/Peronist.

[2] Pérez, Santiago, and Ryan Dubé. “Why Argentina Faces an Economic Crisis. Again.” Wall Street Journal, September 25, 2019. https://www.wsj.com/articles/why-argentina-faces-an-economic-crisis-again-11569422388.

[3] Rey, Débora. “Argentina’s Annual Inflation Soars to 211.4%, the Highest in 32 Years.” AP News, January 11, 2024. https://apnews.com/article/argentina-inflation-december-annual-milei-economic-measures-68f27bf0473590fabb5b6c1aff80579f.

[4] “Inflation Leaving More than a Million Argentines Poor per Month.” Buenos Aires Times, February 19, 2024. https://www.batimes.com.ar/news/economy/inflation-makes-more-than-a-million-argentines-poor-per-month.phtml.

[5] Roy, Diana. “Argentina’s Struggle for Stability.” Council on Foreign Relations, February 5, 2024. https://www.cfr.org/backgrounder/argentinas-struggle-stability.

[6] Stott, Michael and Benedict Mander. “Argentina: how IMF’s biggest ever bailout crumbled under Macri.” Financial Times, September 1, 2019. https://www.ft.com/content/5cfe7c34-ca48-11e9-a1f4-3669401ba76f.

[7] Bernstein, Adam. “Fernando de la Rua: Argentinian president who fled office besieged by riots.” The Independent, July 15, 2019.

[8] “The Role of the IMF in Argentina, 1991-2002.” International Monetary Fund, July 2003. https://www.imf.org/external/np/ieo/2003/arg/index.htm.

[9] Kiguel, Miguel. “Argentina’s 2001 Economic and Financial Crisis: Lessons for Europe.” The Brookings Institution. https://www.brookings.edu/wp-content/uploads/2016/06/11_argentina_kiguel.pdf.

[10] Harrison, Chase. “A Status Check on President Javier Milei's Policy Proposals.” Americas Society/Council of the Americas, February 22, 2024. https://www.as-coa.org/articles/status-check-president-javier-mileis-policy-proposals.

[11] Calatrava, Almudena. “Argentina’s poverty levels hit 57% of population, a 20-year high in January, study finds.” AP News, February 19, 2024. https://apnews.com/article/argentina-poverty-levels-uca-study-milei-devaluation-d5cb0a20b1e768efdeafbad5bf05ede.

[12] Dubé, Ryan. “Argentina’s Inflation Surges After New President Cuts Subsidies.” Wall Street Journal, January 11, 2024. https://www.wsj.com/world/americas/argentinas-inflation-surges-after-new-president-cuts-subsidies-d8d304e2.

[13] “Argentina’s Javier Milei tells nation to brace for painful economic shock.” Al Jazeera, December 11, 2023. https://www.aljazeera.com/news/2023/12/11/argentinas-javier-milei-tells-nation-to-brace-for-painful-economic-shock.

[14] Nicas, Jack and Lucía Cholakian Herrera. “A Nationwide Shutdown Tests Milei’s Tough Medicine for Argentina.” New York Times, January 24, 2024. https://www.nytimes.com/2024/01/24/world/americas/argentina-union-strike-javier-milei.html.

[15] “‘Traitors’: Milei rails against deputies who rejected omnibus bill articles.” Buenos Aires Herald, February 7, 2024. https://buenosairesherald.com/politics/traitors-milei-rails-against-deputies-who-rejected-omnibus-bill-articles.

[16] Dubé, Ryan and Emma Tucker. “Argentina’s President Promised a Free-Market Revolution, and Says He’s Delivering.” Wall Street Journal, January 28, 2024. https://www.wsj.com/world/americas/argentinas-president-promised-a-free-market-revolution-and-says-hes-delivering-d9ff0eca.

[17] Greenspan, Lautaro. “‘Traitor’: Thousands strike against Argentina’s President Javier Milei.” Al Jazeera, January 24, 2024. https://www.aljazeera.com/news/2024/1/24/traitor-thousands-strike-against-argentinas-president-javier-milei.

[18] Otaola, Jorge. “Argentina markets double down on Milei as investors 'start to believe.'” Reuters, February 23, 2024. https://www.reuters.com/world/americas/argentina-markets-double-down-milei-investors-start-believe-2024-02-23/.

[19] Jaureguy, Martina. “What does Milei’s massive presidential decree actually say?” Buenos Aires Herald, December 21, 2023. https://buenosairesherald.com/politics/what-does-mileis-massive-presidential-decree-actually-say.