While the naysayers nay, Milei's Argentina booms

FPI / May 12, 2024

Thanks to the free market reforms of populist President Javier Milei, inflation is falling in Argentina. Interest rates are also coming down. And the peso is on fire.

Milei has also put relations with China in the deep freeze while moving closer to the United States.

And, last week, Milei announced that Argentina had recorded its first quarterly budget surplus since 2008. It was a modest 0.2 percent rise in GDP, but still considered an amazing achievement for a country that has run deficits for 113 of the last 123 years.

"Milei is already proving the global Left-wing economic establishment – addicted to bigger government and endless deficits – wrong," Matthew Lynn wrote for The Telegraph. "Indeed, it may provide a template for other countries to escape from zero growth."

The Left had dismissed Milei as a madman who they predicted would be removed from office within a matter of months, if not weeks. Wrong again.

So how did Milei pull it off and shock the establishment naysayers?

Fundamentally, Lynn noted, Milei "got three big calls right.

"First, even without a majority in parliament, he has been ruthless. Whole government departments have been closed down overnight, regardless of the immediate consequences. The Ministry of Culture was axed, so was the anti-discrimination agency, and the state-owned news service. Only last month, he unveiled plans to fire another 70,000 state employees.

"Milei hasn’t attempted to cut gradually, to control budgets, or to ease people out with early retirement, or hiring freezes. Instead, he has, as promised, taken a ‘chainsaw’ to the machinery of the state, yielding huge savings in the process.

"Next, he has been bold. The president massively devalued the peso on day one, taking the financial hit upfront, and then tore up rent controls, price restrictions and state subsidies. He pared back workers’ rights, reducing maternity leave and severance compensation, and allowed companies to fire workers who went on strike.

"He ripped away fuel subsidies, even though it meant a temporary spike in inflation. Sure, there has been some short-term pain, but the results are now becoming evident."

In his campaign for the presidency, Milei had vowed to unlock Argentina’s vast reserves of shale oil and gas – using technologies that have proved safe and successful in the United States. If he is able to do this, the economy could even start to boom.

"If so, Argentina would be defying a global economic establishment addicted to bigger government, more regulation, and rising deficits," Lynn wrote.

"We keep being lectured, not least by the shadow chancellor Rachel Reeves, and by President Biden and his acolytes in the United States, on the need for an active state, an industrial strategy, and more borrowing to pay for investment, and that regulation is the key to industrial and economic leadership, not its enemy," Lynn added.

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