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What are the economic results of Javier Milei, the new global conservative icon?

Before World War I, Argentina was one of the 10 richest countries in the world. But, subsequent populist policies, enforced specially with President Juan Perón, who was in power from 1946 to 1955 have resulted in bad economic outcomes. These policies have lasted for decades, except in the 90s, under President Carlos Menem, when the country saw some short-lived free-market reforms, but also then the economy was poorly managed.

However, the situation worsened sharply at the end of 2001, when the country suffered a catastrophic economic collapse and default on its $102 billion debt. Since this crisis, Argentina has harboured severe fiscal deficits and macroeconomic indicators. The libertarian economist Javier Milei won the election in 2023 with the promise to cut public spending "with a chainsaw" and to favour the expansion of private markets in the economy.

For Milei, the most important part of his economic plan in the short term is to achieve a fiscal surplus (having more government revenues than expenditures). This follows the libertarian logic that only thereafter is possible to reduce public debt expenditures, increase international reserves, strengthen the currency, reduce inflation, and divert economic production from the public into the private sector, thereby accelerating economic growth in the medium term.

So far these have been the economic results after Milei’s 6 months in power:

● Argentina achieved the country's first quarterly fiscal surplus in 16 years, accounting to 0.6% of Argentina's GDP.

● International reserves have increased by more than $4 billion to $27 billion. This is not enough to completely eliminate exchange controls, so Milei has devalued the currency by 50% to protect international reserves.

● Argentina is closing the gap between the official value of the dollar with the blue dollar (black market). During the election campaign, Milei promised to dollarize the Argentine economy and abolish the central bank, but has recently changed his mind and said that he would just enable the use of the US dollar as an additional currency. Under the previous government, the dollar was officially worth less than 900 Argentine pesos, while the blue dollar was as high as 2500 pesos.

● Argentina's monthly inflation rate in May was 4.2%, the lowest since 2022, thus stringing together five consecutive down months. Annual inflation, while doubling in the first month of his administration due to the 50% devaluation of the Argentinian peso, and the reduction of transportation and energy subsidies, has also been falling from April's peak to stand at 276.4%. Nevertheless, the inflation in Argentina is still ranking among the highest in the world.

● Argentina's industrial production contracted 9.8% year-on-year in May and accumulated in the first five months of the year a 9.2% drop. Companies with larger manufacturing capital are awaiting the stabilisation of the real exchange rate, and therefore have no incentive to take investment risks.

● Forecasts suggest that the fall in Argentina's GDP this year will be 4.5%.

● The construction sector has fallen 25% compared to the months of 2023. In the previous left-wing government, construction projects were mostly financed by the public sector and Milei has cancelled tenders until private companies can replace public ones.

● Due to cuts in public spending and the economic slowdown, year-on-year unemployment has risen from 6.9% to 7.7% in the first five months of Milei’s government.

● Inequality in the distribution of household income has increased in recent months. The Gini coefficient of per capita household income of individuals was 0.467 for the first quarter of 2024. In the same quarter of 2023, this value was 0.446. This indicator of inequality in income distribution has values between 0 and 1, where 0 corresponds to the case of "absolute equality of all incomes" and value 1 to the extreme opposite case, where all people have 0 income and a single person takes the total.

● Overall, poverty has increased with Milei’s government, rising from 40% to 48% of the population. Incomes fell in real terms by 22% compared to the same quarter last year.

Milei has always said that in the first months of his government the situation would be worse than before. He anticipated that poverty, inflation and unemployment would increase, but that all these effects were inevitable in order to redress the economy in the medium-term.

The Argentinian president has become one of the leading conservative figures in the world, cutting ties with Brazil, China and Russia, while embracing the US and Israel. So his performance will be closely watched around the world.


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