Argentina Is Still in Crisis

In October 2023, Javier Milei won Argentina’s presidential election. It was a win that signaled the country’s widespread disappointment with its political system and the two coalitions that have previously alternated in power. Milei, an anarcho-liberal economist with little government experience, spent his campaign promising radical solutions to the problems Argentina’s traditional parties had failed to solve for decades before him: inflation and growth. According to the World Bank, GDP per capita in 2023 was 11 percent lower than in 2011. Official statistics show that the country’s annual inflation rate grew from single digits in 2004 to over 200 percent in 2023.

To tame the runaway prices and spur job creation, Milei pledged that he would slash state spending. To illustrate the point, he traveled to campaign events with a chainsaw in hand. And since winning, Milei has indeed cut public expenditures. Inflation has come down. But after nine months in office, Milei has yet to deliver on his promises of broad transformation. The president has failed to capitalize on the political opening created by the fragmentation of the party system to deliver sustainable governance.

Milei has managed to sustain popular support, even amid harsh economic adjustment policies and a domestic recession, primarily thanks to his success in reducing inflation. But the honeymoon will not last forever. Unless he can improve as a manager and become more adroit at political negotiation, Milei will lose political capital—and Argentina’s perpetual crisis will continue.

PERMANENT CRISIS

Argentina’s most recent political crisis erupted in December 2001, when President Fernando de la Rúa resigned after facing a deep economic recession that led to limits on cash withdrawals, protests, and food riots. The country proceeded to cycle through several interim presidencies before a caretaker government emerged in the early days of 2002. Meanwhile, the state experienced a massive economic collapse that resulted in a sovereign debt default. In 2003, Néstor Kirchner, a center-left Peronist politician, won the presidency, putting an end to temporary governance. But he secured just 22 percent of the vote.

Thanks to increased global commodity prices that benefited Argentina’s agricultural exports, Kirchner managed to build a workable political coalition. He did so by absorbing all the factions of Peronism—a political coalition that emerged under twentieth-century populist Juan Perón’s leadership—and most left-wing parties. Although most Peronists had turned away from left-wing populist tendencies and toward neoliberalism in the 1990s, Kirchner’s leadership pulled the movement back to its roots.

As growth continued, so did the Argentine public’s support of Kirchner and his successor, Cristina Fernández de Kirchner (also his wife). But the country grew increasingly polarized. And as economic growth stalled—with declining GDP per capita and accelerating inflation—the Kirchners and their coalition were replaced by a non-Peronist coalition led by center-right businessman and politician Mauricio Macri.

But Macri, elected in 2015, did not fare much better in solving Argentina’s economic woes. When he left office, the country’s economy was in decline, and annual inflation was 50 percent. He was succeeded by another Peronist, Alberto Fernández (of no relation to Cristina Fernández de Kirchner, although she was his vice president). But Fernández was likewise unable to tame prices. Argentines were, understandably, angry and frustrated. The stage was set for a disruptive outsider—such as Milei.

MILEI IN ACTION

Milei promised to end the dominance of these two main political coalitions, or what he called “the political caste.” Gaining prominence first through social media, Milei blasted his opponents as thieves and rats. He pledged to make Argentina return to the wealth of the early twentieth century by dollarizing the economy and destroying the state. His brash style and big promises gave many Argentines hope that he could end their suffering. Despite concerns that he would damage the country’s democracy, he won the runoff election with 56 percent of the vote. He carried 21 of the country’s 24 electoral districts—including some where he had never even campaigned. Yet because legislators were elected during the first round, and because Milei did not have candidates in all provinces, Milei’s delegation included only seven of the country’s 72 senators and 38 of its 257 representatives—the smallest caucus of any sitting president since the transition to democracy in 1983.

During his first months in office, Milei fulfilled his promises to slash the deficit and reduce inflation. He transformed a fiscal deficit of 2.7 percent of GDP into a surplus of 1.2 percent of GDP by freezing pensions and public salaries as inflation continued, effectively reducing them. He also increased taxes on imports and income, ended all public works projects, fired 30,000 public employees, and reduced energy and transportation subsidies for consumers. As a result, monthly inflation came down from 26 percent in December 2023 to around four percent in June, where it has remained. Milei has, in turn, retained steady popular support, with approval ratings that hover at roughly 50 percent, although there are recent signs of public weariness. According to most polls, inflation has dramatically declined as the main problem identified by Argentines and has been replaced by fears of job loss and poverty.

This shift in public concerns signals that Milei’s policies have been a double-edged sword. By slashing state spending, Milei helped send the country into a deep recession: the government projects a 3.8 percent decrease in GDP for 2024. In time, this could turn into a serious political liability. Milei has faced low levels of social unrest by Argentine standards—two general strikes and one important protest. But as Argentines become more concerned about poverty and job security, this unrest could grow.

Milei has yet to deliver on his promises of broad transformation.

One of Argentina’s longest-standing problems has been the shortage of foreign exchange reserves. When Milei was inaugurated, the gap between the official and the black market prices of the dollar was more than 100 percent. To close that gap, Milei devalued the country’s currency compared with the dollar, which created an inflation spike in the first months of his administration. Instead of dollarizing as he had promised, Milei maintained currency controls—a common response by past presidents—including restricting importers’ access to dollars, in an attempt to avoid another devaluation that would increase prices. But inflation did not decline rapidly enough to prevent the gap between the official and informal dollar rates from re-emerging. Seeking to close that gap without another devaluation, Milei commanded Argentina’s central bank to use national reserves to sell dollars in the informal market to bring down the official price of dollars.

The loss of national reserves has concerned financial markets about Argentina’s ability to pay its sovereign debts, and the use of currency controls makes Argentina less attractive to foreign investment. Seeking to counter these concerns and buoy Argentina’s markets, Milei’s government passed a tax amnesty law for foreign holdings and implemented a new foreign investment regime that favored extractive industries, such as mining. He hopes that these reforms will, in fact, attract foreign investment and thus boost the country’s reserves. Most investments have yet to materialize, however, so until the 2025 midterm elections, Milei’s plan for currency controls relies on significant help from the International Monetary Fund. In 2018, the IMF pledged $45 billion to then president Macri because of pressure from the U.S. Treasury and President Donald Trump. Milei expects similar treatment if Trump wins the U.S. presidential election in November. If Milei manages to achieve financial relief, his allies are likely to win seats in next year’s parliamentary elections, allowing him to boost his legislative support for passing reforms. But if Argentina doesn’t get an inflow of dollars soon, Milei’s electoral calculus is unlikely to work. Argentines vote on the economy, so if Milei wishes to expand his support in the legislature and win reelection, he must continue to deliver on this front.

BORROWED TIME

Until next year’s midterms, Milei could rely on his executive powers to compensate for his small legislative caucus. He has already vetoed a law that Congress passed to finance pensions. But executive power only goes so far. Although his fragmented legislative opposition did not garner the two-thirds needed to override his veto on pensions, it did have the votes to repeal his decree on intelligence spending—the first time a presidential decree has ever been annulled by Congress.

Milei could also leverage the provinces’ dependence on federal transfers to obtain the support of governors and get votes from provincial legislators for his reforms until the midterm elections. But he has not proved to be effective at broader coalition building. In February, he failed to pass an ambitious omnibus reform law because he refused to compromise. He finally garnered support to pass the law in July, but only after negotiations cut the bill to a third of its original size.

Milei’s big promises gave many Argentines hope that he could end their suffering.

Milei’s political negotiators often find their positions and promises discredited by Milei himself—much of government officials’ work focuses on responding to his whims rather than making technical decisions. Milei supervises economic decisions but neglects to meet with ministers in other areas, delegating power to his sister, whom he calls “the boss,” and a young political adviser whose allies are increasingly filling critical bureaucratic positions. Milei’s government also features many unfilled positions, inexperienced officials, and high turnover. His choice of Supreme Court nominees, including a judge tainted by corruption allegations, has caused an uproar among business and legal professionals who believe such choices would weaken the credibility of the judiciary.

Milei could have already started building a broader coalition using the state’s resources, his popularity, and the absence of alternatives left by the fragmented party system. Such a coalition would give credibility to his promises for transformational change (though not necessarily guaranteeing the intended effect of that change). But it would require Milei to change his personality and elevate his interest in government management. Neither seems likely.

Milei has still surprised analysts and politicians, who didn’t predict his victory nor his ability to sustain popular support amid dramatic economic adjustments. He managed to pass a reduced omnibus reform law with the support of his center-right opposition. But his methods of piecemeal legislative negotiation do not guarantee further success. He is betting on next year’s midterm elections to build a broader coalition.

With a citizenry exhausted by permanent crisis, Milei still has a unique opportunity to follow through on his policy promises. But if his electoral gamble does not succeed, the opportunity may close. Even if Milei manages to obtain a plurality of legislators in Argentina’s next midterm election, it will only be his first step toward achieving his goals. Unless he finds a way to win the fight against foreign currency shortages, he, too, will fall victim to Argentina’s economy.