How is Milei Doing? Pretty Well, All Things Considered.
While early signs showed a potential economic failure of the recently elected Argentine government, almost one year in shows the ongoing shock therapy bodes well for the poverty-stricken Latin American economy.
Javier Milei's first speech as Argentina’s president was a sharp departure from his usual upbeat, high-energy dramatic style. Known for his eccentricities—wielding a chainsaw at rallies, draping himself in the Anarcho-Capitalist flag, and cloning his beloved Mastiffs (three of whom are named after economists)—Milei struck a surprisingly somber tone. Milei warned of the difficult times ahead and attacked the idea of a gradual transformation of the economy. Instead, Milei advocated for a complete economic overhaul. Perhaps Milei’s grim timbre was merely a reflection of what he anticipated in the next coming months. He was quoted as saying “We know that the situation will get worse.”
Who is Milei?
For almost all his adult life Javier Milei has worked as an economist. He has taught economics at several universities and has written 50 academic papers on economic topics. His interest in libertarian economic theory began after a recommendation from an acquaintance. Milei’s rise to prominence in Argentina was largely the result of his appearances on Television, where he spoke about various current events from his libertarian perspective. In 2021 he founded his party “La Libertad Avanza,” (Liberty Advances in English). His unexpected victory in the Argentinian elections last year had come off the back of a years-long economic crisis in the country.
The mismanagement of the Argentine Economy in the past century has been the topic of considerable scholarship. A long string of corruption, fiscal irresponsibility, and monetary ineptitude has left a country that was once among the wealthiest in the world a complete disaster. In examining some key economic indicators, we will see that the current Argentine government has made significant progress on all fronts. While in some instances, improvements may seem modest, that should be no surprise after decades of economic folly.
On the surface, one might see that inflation is still well into the triple digits. However, per month, the inflation is now down to 2.7 percent from 25 per cent monthly earlier this year. This has also reduced aggregate inflation in the economy to 193 per cent from 289.4 per cent in March. Compounded monthly, this means inflation would be closer to 35 per cent. Of course, it will likely take several years for inflation as a whole to come down to more reasonable levels, but the rate is the lowest in almost 3 years. Many semi-viral articles have been published in recent months that purport to show poverty has actually risen. That may have been true in the short term, but the latest data suggests otherwise. The latest poverty rate estimate is around 39 percent, a full ten drop from what it was in December 2023 when Milei took office. One of the most cited statistics early on in the Milei tenure was a graph showing a collapse in Industrial Production in Argentina. Indeed, during the beginning of the year, numbers did decline, significantly so. However, more recent data shows a reversal and that industry production is growing.
Milei has seen his approval ratings fluctuate throughout his short tenure. After an initial period of high ratings, they dropped following the first period of reforms.
Popular internet culture has not been too kind to Milei. A common sentiment on X was that Milei was going to turn Argentina into a “4th world country,” based on early economic indicators when the government was in the genesis of its shock therapy. Perhaps some of the frustration is understandable.“Shock therapy,” has a bad reputation, particularly in Latin America, where it is associated with Chilean dictator Augusto Pinochet and the “Chicago Boys,” a group of economists (including Milton Friedman,) who Pinochet sought advice from to restore the economy after a military coup of the previous socialist Salvador Allende. While the economic advice certainly helped Chile, the period is also known for the horrendous violence the Pinochet government unleashed on its citizens. These events, and others, have been written about in a popular book by Canadian author Naomi Klein aptly named The Shock Doctrine. Calls to cut spending, and reduce taxes, create the image of “austerity.” The idea with shock therapy is that these dramatic shifts will cause a shock of life on the economy. The idea that these measures can be effective for growth on some level is generally not in dispute. Are the long-term gains worth the short-term suffering? Could a more gradual approach have avoided some of the early issues in Milei’s tenure?
Whatever the answers to those questions are, many economists are optimistic about 2025 growth prospects. Several institutional investing firms are predicting significant economic recovery, including many institutional investors. One can now be cautiously optimistic for a bright future in Argentina, which would have sounded implausible even just a year ago.