Argentina is South America’s success story of the year

President Milei has stabilized the country in a serious crisis. Now he must continue his reform course. A further recovery of the continent’s second largest economy would be important for South America.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

Exactly one year ago, political newcomer Javier Milei took office as President of Argentina.

It is no exaggeration to say that Milei has succeeded in bringing Argentina and its politics back to international attention. The libertarian’s policies polarize many people around the world. In the meantime, “Milei” has even become part of the election campaign in Germany.

Milei’s results after one year are impressive:

Inflation lowered

Inflation has been reduced significantly. Instead of over 20 percent per month, it is now just under three percent. If everything goes according to plan, annual inflation could have fallen to 25 percent by the end of next year. That is not much by Argentinian standards.

State budget in the black

In addition, the government is no longer generating deficits in the national budget, but surpluses. This means that the root of decades of inflation has been cut. Milei has achieved this by cutting government spending by up to 30 percent, depending on the estimate: layoffs of state employees, pension cuts and the elimination of transfer payments to the provinces were the decisive measures to bring the budget into the black.

Deregulation driven forward

To this end, laws that burden the economy and the everyday lives of Argentinians are being abolished or amended. Many authorities and ministries that it considers superfluous have been closed. In this way, the government wants to increase the weak productivity of the economy and public administration. It is proceeding according to a detailed plan.

The reform program has not damaged Milei’s popularity. The government has the same approval and rejection ratings as in the elections a year ago. That is better than the previous governments. With stability, confidence has grown that things will get better in 2025. The poverty rate, which has risen by eleven percentage points this year, is starting to fall again.

The start was therefore remarkable. Many had expected that the often aggressive economist would only last a few months in the Casa Rosada.

The Milei government must now continue its reform program. In the short term, it has some pressing problems to solve:

High prices

On the one hand, Argentina has become the most expensive location in South America over the past twelve months. This is jeopardizing the industry, which is barely competitive with foreign rivals – both domestically and on export markets or in Mercosur. Local service providers (tourism, data centers) are also suffering from the high prices.

Increasing purchasing power through new jobs

In addition, new jobs must be created quickly in order to increase the purchasing power of the population and approval of the government.

Abolish capital controls

However, it will be crucial for investors that the government gradually relaxes capital controls in the coming year and eventually lifts them completely. This is because investors are reluctant to bring their capital into the country if they could suffer losses in value in the event of a devaluation. Foreign investors also want to be able to repatriate capital gains and dividends.

A stable Argentina is important for South America. The many crises of recent years have made us forget that the country is the second largest economy on the continent. A leaderless, chaotic Argentina, as has been the case in recent years, is a burden on South America as a location and trading partner.

If the country attracts investment and attention again, this will also strengthen the importance of Mercosur. Resistance in the EU to the agreement with the confederation is likely to decrease if Argentina can once again act as a fully-fledged trading partner.

So we can only hope that Milei will continue to be successful with his reform course.