How Javier Milei’s Radical Reforms Transformed Argentina’s Economy

Milei Eliminated 10 Government Agencies, Fired 34,000 Civil Servants, and Cut Spending by 30%

By Kevin Stocklin for The Epoch Times

On his first anniversary as Argentina’s president, Javier Milei announced the first results of his relentless campaign to cut government spending, eliminate regulations, and streamline the country’s administrative system.

“Today, with pride and hope, I can tell you that we have passed the test of fire,” Milei told Argentines last week. “We are leaving the desert, the recession is over, and the country has finally started to grow.” »

When Milei took office in November 2023, Argentina—once one of the world’s ten richest countries—was dysfunctional. Having defaulted on its sovereign debt three times since 2001, it was on the verge of doing so again.

Its annual inflation rate was close to 200%, its poverty rate was over 40%, its growth rate was negative 1.6%, its budget deficit was 15% of GDP, and its trade deficit was chronic.

Argentines wanted change and elected the self-proclaimed libertarian with the largest majority ever won by a presidential candidate since free elections were restored in 1983. He won 55.7% of the vote, beating his opponent, incumbent Economy Minister Sergio Massa, who won 44.3%.

Over the past year, Milei has eliminated 10 of Argentina’s 18 ministries, capped salaries for senior officials, and laid off 34,000 civil servants, cutting government spending by 30%.

After the November U.S. election, Javier Milei was the first foreign leader to meet with Donald Trump, and members of the new Trump administration are following his progress closely.

“A sensible formula for fixing the U.S. government: Milei-style cuts on steroids,” Vivek Ramaswamy, co-director of the soon-to-be-created Department of Government Efficiency (DOGE), posted on the social media platform X.

Off the Beaten Tracks

From the moment it took office, Milei’s administration acted as if it were in a race against time, trying to provide some sign of a brighter future before voters’ patience wore thin.

In his first month in office, Milei issued a “mega-decree” that included 366 regulatory reforms, according to a report by Cato policy analyst Ian Vasquez and Guillermina Sutter Schneider, co-author of the Human Freedom Index.

By the end of his first year, 672 regulatory reforms had been enacted, 331 regulations had been eliminated, and 341 others had been amended.

These measures, including the elimination of import licenses and the lifting of rent controls, ultimately led to a 35% reduction in the price of household appliances and a 20% reduction in the cost of clothing, the authors write, as well as a sharp increase in the number of apartments available for rent in Buenos Aires, leading to a significant drop in rental prices.

Dismantling a Centralized System

“When Milei took up residence at the Casa Rosada, he was faced with a colossal task: dismantling Argentina’s illiberal and fascist economic system, a system that had been in place since the 1930s in which everything Argentines did was subject to the omnipotent dictates of the state,” said Steve Hanke, an economics professor at Johns Hopkins University and an adviser to former Argentine President Carlos Menem.

The president’s rhetoric and accomplishments “put the idea of ​​free markets back on the lips of the chattering classes,” Hanke said in an interview with The Epoch Times.

Milei, an economist, author, former football player and rock and roll singer, has sometimes campaigned with a chainsaw in his hand, pledging to cut government bureaucracy in a country that he says has “embraced socialist ideas for 100 years” and is now eager to get rid of them.

“Liberalism is a natural form of rebellion against the system,” Milei said in a 2023 interview with Tucker Carlson. One of his campaign slogans was “Viva la libertad” (Long live freedom).

Perhaps most importantly, and beyond economics, Milei has initiated a cultural shift away from socialist ideals.

Argentina’s extensive system of government control has earned it a meager 159th place out of 165 countries on the Fraser Institute’s 2022 Index of Economic Freedom, between Iran and Burma, also known as Myanmar. But Milei’s campaign against socialism is not limited to economic freedom.

Peter Earle, an economist at the American Institute for Economic Research, told The Epoch Times, “Perhaps most importantly, and beyond economics, Milei has initiated a cultural shift away from socialist ideals, championing civil society and the principles of liberty and personal responsibility.” »

His presidency echoes that of his predecessors, including British Prime Minister Margaret Thatcher, who in the 1980s implemented a then-radical program of tax cuts, privatization and deregulation, while reforming the country’s labor unions and health and education systems.

This sense of urgency is also reminiscent of that of many European countries of the former Soviet Union, which rushed to build market-based democratic structures while dismantling sclerotic, state-controlled systems.

Devalue but Keep the Peso

Milei’s administration also devalued the peso by half to align its official exchange rate with market exchange rates, halted government infrastructure projects and cut fuel subsidies.

He had proposed to eliminate Argentina’s national currency altogether and replace it with the U.S. dollar. But he did not do so, undermining his fight against inflation, some experts say.

“Milei’s Achilles heel will be the peso,” Hanke said. “Milei won the election because he promised to scrap the central bank and the peso.”

He failed to do so, while leaving capital controls in place, Hanke added.

“If Milei had dollarized as he promised ‘from day one,’ inflation would be dead by now and capital controls would be history,” he continued.

Milei has also sought to reorient Argentina’s economy, which he considered unbalanced, with too much of GDP coming from government spending and personal consumption and too little from private investment and exports.

He appears to have succeeded, turning the country’s trade deficit into a surplus this year. Argentina is rich in raw materials such as lithium and copper, essential for making electric batteries and power transmission lines, and has abundant fertile land for agriculture, according to the World Bank.

Emerging from a Painful Transition

Changes of this magnitude are often painful, as Milei warned. But there are signs of better days ahead.

According to a World Bank report, Argentina’s GDP is estimated to have shrunk by 3.5% this year “due to the stabilization plan that includes the realignment of relative prices and the elimination of fiscal and external imbalances,” and partly because of a severe drought that has hit the agricultural industry hard.

Personal consumption rates appear to have declined as Argentines, like many Americans, continue to struggle to make ends meet. Beef consumption in Argentina, a country known for its beef, fell in the first six months of this year to its lowest level in 13 years.

Argentina’s poverty rate rose from 42% to 53% in Milei’s first six months in office, the country’s highest level since 2003. It is now falling, to 49% in December.

Inflation soared to 280% in April, according to Statista, largely due to the devaluation of the peso. The monthly inflation rate fell from 25% a year ago to 2.4% in December, and the government and trade balance went from a deficit to a surplus.

Public spending was cut by nearly a third.

In November, Argentina reported its ninth consecutive month of budget surpluses. With inflation running below 3% a month, Argentina’s central bank cut interest rates from more than 100% a year ago to 36% at the end of November.

In September, Argentina’s wage growth rate of 4.7% exceeded the inflation rate for the first time in years, according to Trading Economics.

The World Bank projects that Argentina’s GDP will grow by 5% in 2025.

According to one poll, 43% of Argentines have confidence in Milei’s administration, compared with 24% for his predecessor.

A Gallup poll in December found that 41% of Argentines believe their economy is improving, compared with 25% in 2023, and that 53% of Argentines believe their standard of living has improved. This is the first time since 2015 that a majority of Argentines have said so.

Still, 35% said they continue to have trouble getting food and 69% said they are struggling to find work.

Overall, Milei’s reforms have received mixed approval, with 43% of Argentines expressing confidence in his administration. While that figure is less than half, it is a sharp increase from the 24% who expressed confidence in his predecessor, President Alberto Fernandez. And in some recent polls, Milei’s approval rating has exceeded 50%.

Lessons for the Trump Administration

Earle said that if the Trump administration wants to emulate Milei, it will have to do so “given the time it takes to implement economic policies.”

“Given the speed with which he has assembled his cabinet and begun to develop plans, it is abundantly clear that President Trump intends to begin removing burdensome regulations and wasteful spending on his first day in office,” Earle said.

The Trump administration must also be prepared to consider cuts to areas such as the military, education, Social Security and Medicare, and “insulate itself from the criticism” that will inevitably follow.

The United States is not facing the same crises as Argentina, but many economists predict dire consequences if federal spending continues at the current pace.

America has run up more than $8 trillion in federal deficits between 2020 and 2023, and the national debt, which has topped $36 trillion, is costing Americans $1.8 trillion in interest payments per day.

Inflation, which was largely fueled by government spending, has been reduced from its peak of over 9% in 2022 to 2.7% today. The recent rise in inflation indicates that it remains a threat and underscores the need to rein in spending.

During his first term, Donald Trump cut taxes and approved trillions of dollars in new government spending, to which President Joe Biden has added trillions more.

“If tax cuts are not accompanied by spending cuts, deficits will widen,” Earle said.

“The administration and its policies could lose credibility if, after being elected on a better approach to economic issues, U.S. debt and deficits, and inflation, worsen.”

And Trump may not be as devoted to free markets as Milei.

While Milei has liberalized trade, reducing the cost of many essential imported goods, Donald Trump has threatened to impose numerous tariffs—which some fear would raise prices—in an effort to protect American industries.