Javier Milei, the self-identified anarcho-capitalist who took office as Argentina’s President in December, has been conducting a predominantly effective campaign against inflation during his inaugural year in office. Recently, Argentines were greeted with positive news: their economy is experiencing growth once more. According to reports from the Argentine government, economic activity increased by 1.3 percent from April, surpassing the median analyst estimate of 0.1 percent in a Bloomberg survey.
This marks the first instance of growth since the start of Milei’s presidency. Compared to a year earlier, the proxy for gross domestic product (GDP) has expanded by 2.3 percent. This encouraging economic news has caught many off guard, as it contradicts the International Monetary Fund’s earlier forecast that Argentina would see the lowest economic growth globally in 2024.
Nevertheless, Argentine economists caution that while these figures are promising, the nation’s economy is still far from full recovery. When Milei took office, Argentina was facing an astonishing inflation rate of 211 percent year-over-year, alongside a poverty rate exceeding 40 percent. Milei introduced a set of economic reforms known as “shock therapy,” which involved drastic cuts to government expenditures, reducing bureaucratic processes, and devaluing the peso.
There were concerns from critics that these actions would exacerbate Argentina’s recession. Yet, in spite of these warnings, Milei proceeded with his strategy. A number of government subsidies were removed, and the peso’s value was reduced by half.
Argentina’s unexpected economic growth
Even before Milei’s policies had the chance to bear fruit, they were criticized for potentially increasing poverty levels. Contrary to pessimistic forecasts, the outcomes of Milei’s reforms have been more favorable than anticipated.
In the first half of 2024, inflation in Argentina decreased for five consecutive months, as reported by the Associated Press. Although consumer prices rose by 4.6 percent in June compared to the previous month, this marks a significant decrease from the staggering 25 percent month-over-month surge witnessed in December. Additionally, the government announced its first primary fiscal surplus in over ten years, with recent data indicating a noteworthy reduction in poverty levels.
Some analysts warn that it may be too early to declare an end to Argentina’s recession. Nicolás Cachanosky, an Associate Professor of Economics at the University of Texas at El Paso, points out that year-over-year statistics can be deceptive and that the figures in question represent relative values rather than absolute growth rates. Despite these caveats, the economic advances observed to date are noteworthy.
Many skeptics believed that Argentina’s economy could not rebound so swiftly, given typical economic theories. Argentina is rewriting the macroeconomic narrative by cutting government spending during a recession, which opposes the traditional Keynesian approach. Instead, Milei’s initiatives may pave the way for more sustainable growth by eliminating unproductive government positions and curtailing unnecessary subsidies.
The discussion regarding the optimal path to economic recovery is set to continue as Argentina progresses with its reforms. While it’s premature to definitively assert that Argentina has emerged from recession, the current indications are promising and may suggest a pathway toward economic stabilization.
