Milei: quel bilan?

This discussion focuses on Javier Milei, the current President of Argentina, and the economic reforms he has implemented since his election in November 2023. At the time of his election, Argentina was in a state of severe economic crisis, with GDP stagnation since 2011, annual inflation exceeding 200%, public debt over 85% of GDP, poverty affecting more than 40% of the population, and unemployment around 7%. This was a striking decline for a country that was once among the richest in the world, possessing abundant agricultural resources, industry, raw materials, oil, and gas. The prevailing view was that decades of socialist and statist policies had led the nation to ruin, while those in power had significantly enriched themselves. Milei's program, dubbed "Motosierra" (chainsaw), promised radical changes to reverse this trend. Key proposals included dollarizing the economy to combat hyperinflation, closing the central bank, reducing the number of ministries from 18 to 9, drastically cutting public spending and subsidies, and privatizing major state-owned enterprises like Aerolíneas and YPF (oil). He also aimed to liberalize the labor market by facilitating dismissals, extending trial periods, and removing price and exchange controls. On the international front, Milei sought alignment with the United States and a break with China and left-wing South American governments. The overarching goal was to minimize the state and unleash market forces. While not all promises were fulfilled, Milei has largely implemented his agenda, applying roughly two-thirds to three-quarters of his program. He immediately cut public spending, achieving a fiscal surplus of 0.3% of GDP in 2024. The number of ministries was reduced from 18 to 9, energy and transport subsidies were eliminated, and 30,000 administrative positions were suppressed by the end of 2024. A significant wave of deregulation followed, with the "Ley Bases" of 2024 and its expanded version in 2026 abolishing over 13,500 regulations. Prices were liberalized, and the labor market was simplified with extended trial periods, easier dismissals for SMEs, and the possibility of 12-hour workdays (within a 48-hour week) or foreign currency salaries. Privatizations progressed, with parts of Aerolíneas and YPF changing hands by 2026, generating $8 billion for the state. Internationally, alignment with the US materialized through trade agreements and a $20 billion swap agreement in late 2025. However, unlike his initial ideological stance, Milei maintained ties with China, demonstrating pragmatism. China's offer to finance infrastructure projects and its demand for Argentine soybeans and lithium proved too beneficial to ignore. Two major promises were not fully realized: dollarization and the closure of the central bank. Dollarization was deemed less appropriate given the US's own monetary policies, and closing the central bank, while an old idea, was not considered indispensable. Instead, the central bank’s role was refocused on verifying accounts and ensuring banking stability, a task simplified by a constitutional ban on budget deficits. Upon taking office, Milei devalued the peso by 50%, aligning its official rate with the black market rate, effectively eliminating the unofficial parallel economy. He also abolished rent controls, which led to a more than 200% increase in rental supply in Buenos Aires and a subsequent drop in rental prices, offering a compelling case study on deregulation. Inflation, though drastically reduced from over 200% annually to around 30% by early 2026, remains a significant challenge. This persistent inflation is partly due to the time needed to "cleanse" the economy of previously printed money and to shift public psychology, as Argentinians have seen past governments fail to sustain anti-inflationary measures. A significant issue is the large amount of undeclared capital held outside the formal economy. Estimates suggest between $250 billion and $271 billion in dollars are "under the mattress" – six times the central bank's net reserves. To address this, Milei implemented fiscal amnesty laws, encouraging citizens to bring their dollars back into the real economy without fear of legal repercussions. A 2025 plan brought in over $20 billion, and a new law in early 2026 further extended this initiative. Milei's political standing has strengthened. Despite initially holding a minority in Congress, he gained a majority in recent elections, signaling public support for his reforms. This mirrors the phenomenon seen with Margaret Thatcher, where strong leadership and effective action garner public backing. Economically, Argentina avoided a technical recession at the end of 2025 and is projected to achieve 4% GDP growth in both 2025 and 2026, according to the IMF, which previously doubted his plans but now praises the "remarkable stabilization." Unemployment has also decreased from 7% to 5.4% by March 2026, with 4,500 private sector jobs created. This initial period of economic hardship followed by recovery is typical of "supply-side" policies, which prioritize long-term structural adjustments over short-term stimulus. Milei, initially identifying as a libertarian, has adopted a more liberal, pragmatic approach in governance. He recognized the necessity of a functioning state with a monopoly on legitimate violence (police, army, border controls) to maintain order and enforce rights. This contrasts with the "anarcho-capitalist" ideal of no state, which is often criticized as unrealistic in practice. He also dismissed the "perfection fallacy" of some libertarians who demand 100% ideological purity, recognizing that effective governance requires pragmatic adaptation. The poverty rate, initially around 40% when Milei took office, briefly rose above 50% before falling to approximately 30% today – 10% lower than at the start of his presidency. This positive trend, however, has received less media attention than the initial increase. Recently, the Argentine Senate approved a labor modernization law (42 votes to 28), a significant legislative victory for Milei, despite union protests. This reform, which modifies the 1974 labor code, allows for 12-hour workdays (within a 48-hour week), permits overtime to be compensated with rest rather than increased pay, and simplifies and reduces the cost of dismissals. Employers now contribute to a special fund for future severance payments. The government argued these changes were necessary to move people out of the informal economy, where 40% of the workforce previously operated without contracts or social protection due to overly rigid regulations. Simplifying rules aims to integrate more people into the official labor circuit, allowing businesses to grow beyond small, informal operations. The remaining challenge for Argentina is controlling inflation to attract foreign investment. While there was a rally in Argentine stocks in 2024 and after Milei's mid-term election wins, foreign investors remain cautious. Argentina possesses vast reserves of shale gas and other raw materials, which could attract significant capital. Much of this potential investment could come from Argentine capital currently held abroad, particularly in places like Miami, if confidence in the local currency is restored. The political landscape in South America is also seen as crucial. Upcoming elections in Brazil in October could be pivotal. If Brazil shifts towards a more liberal-conservative stance, it could solidify a regional trend that includes Chile, Peru, Colombia, and Argentina. This "liberal-conservative revolution" in South America, exemplified by leaders like Milei and potentially Bolsonaro's son in Brazil, is viewed as a significant historical movement, akin to the Thatcher-Reagan era in the 1980s. This shift could transform the region into a fertile ground for structural investment, given its abundant resources and favorable demographics. Historically, many Europeans who went to Latin America had short-term financial goals, aiming to make money and return home, unlike those who settled in North America. This led to a lack of deep population anchoring in the economic system. The current movement aims to foster greater local patriotism and anchor populations, especially elites, in their own countries. The discussion concludes by highlighting the success of Milei's reforms, despite initial criticism, and their potential as a model for other countries facing similar challenges. The shift in South America away from left-wing, statist policies is seen as a positive development, offering a renewed hope for economic growth and stability in a region often plagued by political and economic instability.