Latin Analysis: A Year Of Javier Milei
Antoine Gyori - Corbis
“Today, a new era begins in Argentina.” Lifted to the presidency after winning 55.7 percent of the vote in a run-off election against economy minister and Peronist candidate Sergio Massa in November 2023, Javier Milei arrived to Argentina’s Casa Rosada with a clear message. The status quo was going to be destroyed, and radical change was coming.
Milei warned that there was no money left in his maiden speech, as “annual inflation stood at 161 percent with 45 percent of the population living in poverty”. He vowed to dismantle the legacy of the Peronist movement that had dominated Argentina’s politics for the last few decades, characterized by the political career of ex-president Juan Perón, a nationalistic state, isolationism, and a strong labor movement. He promised to take a ‘chainsaw’ to Argentina’s institutions to save the country from otherwise inevitable ruin.
As part of his crusade against inflation, Milei announced the devaluation of the peso by 54 percent against the U.S. dollar two days after his inauguration. Argentinian exports became cheaper and imports more expensive, incentivizing people to purchase domestic products and help stabilize the peso. Many were surprised that Milei did not opt to dollarize the economy straight away, since this was a cornerstone of his campaign. However, Milei has said that the dollarization of Argentina’s economy is the “final step in a long process”, and is currently seems more committed to ‘currency competition’ between various different global currencies.
Milei’s government quickly became synonymous with widespread spending cuts. The size of the government greatly reduced, with the number of ministries halved and more than 25,000 public sector employees losing their jobs. Public works were also frozen, while funding was cut dramatically within education (-52 percent) and infrastructure (-74 percent). Regarding higher education, Milei vetoed a law that would bring funding for state universities in line with inflation rates, meaning that “66 national universities suffered a 68 percent reduction in their incomes”.
Subsidies for utilities like energy and public transport- accounting for nearly 2 percent of GDP in 2023 - have also been stripped away to bring down inflation. Energy subsidies were reduced by 37.5 percent in the first six months of the year, with the administration hoping to reduce it by another 41.3 percent in 2025 to only 0.5 percent of GDP, the lowest figure since 2007.
Unfortunately, despite its positive impact on the national budget, cutting these subsidies utilities has notably affected the purchasing power of working-class Argentinians. Those in the lower socio-economic brackets were expected to see their bills double, while the middle-classes were to notice a 155 percent jump. Unfortunately, wages have not kept up with these price hikes, and this has especially impacted on pensioners who have experienced additional pension cuts. However, regarding the economy, it appears that these measures have been successful. Milei’s government has “produced the first fiscal surplus in recent history”.
In another significant break with Peronist tradition, Milei’s also focused much of his attention on privatization. After exerting a ‘mega decree’ in December 2023, Milei repealed laws that provided Congress with a vote on privatization and deregulation measures and affected labor rights. An omnibus bill was presented to Congress, seeking their approval to privatize forty-one state-owned companies such as the state-owned airline, national oil and rail companies. In June 2024, the revised bill was passed by the Senate. Almost all of the initiatives regarding privatization remained, as well as increased “penalties for road-blocking protests, and a dismantling of environmental protections”.
Are Milei’s policies working?
Inflation in Argentina has fallen from 25 percent in December last year to around 4 percent in July, to the delight of the government and international bodies like the IMF. The Central Bank have been able to build up international reserves and stabilize exchange rates, while sovereign spreads have also greatly reduced.
However, significant spending cuts have contributed to driving the country to recession. GDP fell 3.4 percent in the first six months of 2024 compared to the same period in 2023. This was influenced by the reduction in activity within sectors like construction - which has fallen by 22 percent. The economy has also shrunk in the last quarter, making it the “third straight quarterly contradiction in Argentina”.
Wage inequality has also seemed to worsen under Milei. Although issues with wages have affected all workers, salaries in informal sectors (which employ around 50% of the population) have increased at around half the rate than those in the formal sector. This difference between sectors is unfortunately worsening the income inequality, with Argentina’s Gini coefficient- measuring global income inequality- recording its highest level since 2005. This has inevitably contributed to poverty levels reaching a record high, having increased 11.2 percent since the end of 2023, with 52.9 percent living in poverty during Milei’s first six months.
In the context of a growing poverty and income inequality issue in Argentina, there has been a considerable number of protests and industrial action. Historically, “the average Argentine president has around two years before the unions strike”, but this has not been the case for Milei who was in government for less than two months when the first protests took place. Unlike his Peronist predecessors who tended to have strong links with unions, right-leaning libertarian Milei does not enjoy widespread support from said organizations; Argentina witnessed its first general strike in five years in January 2024. There were further strikes and walkouts in February in response to austerity measures, and a second nationwide strike in May. Then, three strikes took place in one week at the end of October, with two out of three motivated by trade unions that have taken issue with Milei’s policies. These three consecutive actions essentially paralyzed transport systems throughout Argentina, with 1,800 trains and over 260 Aerolíneas Argentinas flights either cancelled or severely affected by strike action.
Despite this, Milei continues to enjoy a high approval rating. Between May and June 2024, Argentina’s president was voted the third most popular leader in Latin America with a 48 percent approval rating, just behind outgoing Mexican president Andrés Manuel López Obrador at 65 percent, and Luis Lacalle Pou in Uruguay with 50 percent. Once the markets began to show signs of recovery, his popularity – which had temporarily lulled in September in response to pension reforms- rose 12 percent. At the end of October his approval rating stood at around 52.5 percent.
Presidential image rankings, May-June 2024
After reflecting on the political developments that have taken place under Milei’s first year in government, it is fair to expect big things for Argentina in the three years left of his first term. He has vowed to fix the economy and bring the country into a new age, free from the damage caused by the so-called ‘political caste’ that Milei blames for Argentina’s current problems. However, these policies have come at a high social cost, one that is felt throughout the population and making day-to-day living difficult for many. Are these initiatives sustainable? Only time will tell. But Milei did tell the people that these measures would hurt, and kept unchecked, these consequences of his shock economics may have profound social costs that trigger greater challenges for Argentina to face.
