When Argentines voted for Javier Milei, a self-described anarcho-capitalist (although, in practice, the truth is more nuanced than that) as their president, this didn’t (sadly) reflect a sudden mass conversion to libertarian-type economics. Rather it was a recognition of how totally their corporatist, heavily interventionist, tariff-protected system had failed, and for how long it had failed (there’s a lesson there, but I’ll let it pass for now). The last Argentine president to try something different was the center-right’s Mauricio Macri. He was elected in 2014, but, daunted, I suspect, by the extent of the challenge he faced, opted for a gradualist approach. It failed.
Economic woes were the reason that Macri was elected, and economic woes were the reason that he was defeated. In 2019 Macri lost his bid for reelection to Alberto Fernández, a Peronist of the old statist school. Predictably enough, the country’s economy continued to deteriorate. What had been chronic quickly became acute. Argentina was again running out of foreign reserves. Inflation reached three digits and showed every sign of accelerating into hyperinflation. Milei, a (very) noisy outsider with no connection to the old establishment opposition, announced he was running for the presidency in last year’s elections and started brandishing a chain saw, a symbol of the shock therapy he believed the country needed. And then, somewhat surprisingly, he won.
The story of what has happened since Milei’s election has been complicated by the fact that while he was elected by a comfortable majority, his nascent political party (LLA) has little more than a toehold in the legislature, a problem, even under a system such as Argentina’s in which the president has a great deal of power. Nevertheless, shock therapy is under way. Hyperinflation has been beaten off, and, thanks to brutal cuts, the country is running a fiscal surplus for the first time in a very long while. Those are positive signs for the future, but the cuts have come at a very heavy cost for most Argentines, for whom life is extremely tough. Despite that, Milei probably still has the support of a bit more than half the electorate. When he took office, he summed up the problem in one succinct phrase, “there is no money” (“no hay plata“). He wasn’t exaggerating. It was a phrase that resonated — and still does.
Nevertheless, a currency crunch is coming up (the peso — at its official rate — is badly overvalued, despite a 54 percent devaluation shortly after Milei’s election), and the most recent monthly inflation data show a modest uptick after months of decline. Milei needed some good news. He may have just gotten some.
Argentina’s economy recorded its best month in May since President Javier Milei took office late last year as investors look for signs of recovery from another recession.
Economic activity rose 1.3% from April, above the 0.1% median estimate from analysts in a Bloomberg survey and the first month of growth since Milei’s term began in December. From a year ago, the proxy for gross domestic product grew 2.3%, defying expectations for a decline of similar magnitude, according to government data published Thursday.
Current expectations (International Monetary Fund) are for GDP to fall by 3.5 percent this year and then jump by 5 percent in 2025, a (midterm) election year. The clock is ticking.