Argentina’s Economic Resurrection

Argentina’s history is marked by economic imbalances, chronic deficits, and frequent policy reversals. The results speak for themselves: a country that once stood among the world’s rising powers at the start of the last century had, until recently, become the clearest academic example of failed economic policymaking.

But that long-standing trajectory has begun to change.

It has now been two years since Javier Milei, the world’s only self-proclaimed libertarian president, took office. And while his policies have included heterodox elements that don’t strictly follow Hayek’s playbook, the outcomes are undeniably positive.

From day one, the government imposed a complete halt on all automatic federal transfers and introduced a sweeping plan to cut public spending. Public works were reduced to zero, salary increases across every level of the public sector were suspended, and the number of ministries was slashed from 18 to 9, with deep cuts to mid-level positions. Many state-owned companies also had their ongoing projects frozen or canceled. After these measures were implemented, Argentina moved from a fiscal deficit of 4.6% of GDP to a surplus of 0.2%, all within just one year.

With a sharply reduced fiscal footprint, Argentina no longer needed to print unbacked money to fund its operations. Instead, part of the savings was redirected toward targeted social programs that provided a genuine safety net for those who truly needed support. Inflation has quickly fallen from 20% per month in January 2024 to just 2% per month today, while poverty has decreased by 10 percentage points since 2023.

As expectations shifted and the new economic policy took hold, households experienced an immediate income effect. Property prices, which had fallen 30% between 2019 and 2023, have since risen by roughly 20% on average. Meanwhile, Argentina’s main stock index has surged nearly 200% since Javier Milei was elected. Naturally, the public viewed this process as a virtuous cycle, a sentiment they made clear at the polls this past October.

Just last month, Milei’s party, La Libertad Avanza (Liberty Advances), won the midterm elections with 41% of the vote, becoming the most-voted force nationwide, reaffirming its popular support, and positioning itself as the largest minority bloc in Argentina’s Congress.

These results stand in contrast to the “common sense” narrative that has long been used to justify inaction; the idea that adopting austerity measures to rein in the chronic deficits common across most Western economies would be impossible, as they would supposedly unleash widespread pain and hardship.

As a result, most Western countries now face a similar set of problems: persistent fiscal deficits that require ever-greater levels of debt to finance them, sluggish economic growth, and rising social discontent. At the same time, this expanding debt load pushes inflation and long-term interest rates higher, creating an increasingly unavoidable trade-off between rising prices and a growing fiscal burden.

In the United States, the world’s leading military power, interest payments on the national debt now exceed total defence spending. In the United Kingdom, the cost of servicing the debt is nearly twice what the country invests in defence. And in Australia, total debt has climbed from 20% of GDP a decade ago to roughly 45% today, and continues to rise.

Public debt is nothing more than future money printing or future austerity; there is no third option. Yet Western elites seem comfortable with this reality as long as they can preserve their lifestyles and privileged status within a system that is, paradoxically, increasingly anti-capitalist in its incentives.

Without meaningful austerity measures or structural reforms, Western countries are on track to face the same fundamental problems Argentina is now forced to resolve. Sooner rather than later, Western governments will have to decide how they intend to correct their trajectory. They can allow the market to do it brutally through higher inflation, consequent debt erosion, and rising social unrest, or they can pursue an orderly path driven by deliberate political and economic choices.

“If socialists understood economics they wouldn't be socialists.”
– Friedrich A. Hayek