Javier Milei, the self-described anarcho-capitalist who assumed office as Argentina’s President in December, has been waging a largely successful campaign against inflation during his first year in office. Recently, Argentines received welcome news: their economy is growing again. According to data from the Argentine government, economic activity rose 1.3 percent from April, above the 0.1 percent median estimate from analysts in a Bloomberg survey.
This marks the first month of growth since Milei’s term began. From a year ago, the proxy for gross domestic product (GDP) grew 2.3 percent. The positive economic report has taken many by surprise, as it defies the International Monetary Fund’s earlier projection that Argentina would experience the least economic growth of any country in the world in 2024.
However, Argentine economists note that while these numbers are encouraging, the country’s economy is far from being fully recovered. When Milei assumed office, Argentina was enduring an inflation rate of 211 percent year-over-year, with a poverty rate north of 40 percent. Milei proposed a series of economic reforms dubbed “shock therapy,” which included slashing government spending, cutting bureaucracy, and devaluing the peso.
Critics feared these measures would deepen Argentina’s recession. Despite the warnings, Milei went ahead with his plan. Numerous government subsidies were eliminated, and the value of the peso was cut in half.
Argentina’s surprising economic growth
Even before Milei’s policies had a chance to succeed, they were criticized for pushing more people into poverty. Contrary to the dire predictions, the results of Milei’s policies have been better than expected.
During the first half of 2024, inflation cooled for five straight months in Argentina, according to the Associated Press. Though consumer prices were up 4.6 percent in June compared to the previous month, this was a significant improvement from the 25 percent month-over-month increase seen in December. Moreover, the government reported its first primary fiscal surplus in more than a decade, and recent data showed a notable decline in poverty.
Some experts caution that it is premature to declare Argentina out of recession. Nicolás Cachanosky, an Associate Professor of Economics at the University of Texas at El Paso, notes that interannual figures can be misleading and that the data in question are relative values rather than absolute growth rates. Despite these reservations, the economic progress thus far is remarkable.
Many people doubted that Argentina’s economy could recover so quickly due to common economic assumptions. Argentina is flipping the macroeconomic script by reducing government spending during a recession, which runs counter to Keynesian orthodoxy. Instead, Milei’s measures may be setting the economy on a path to more sustainable growth by cutting unproductive state jobs and reducing wasteful subsidies.
The debate over the best approach to economic recovery will continue, especially as Argentina moves forward with its reforms. While it’s too early to conclude definitively that Argentina is out of recession, the current signs are encouraging and suggest a potential pathway to economic stabilization.
