Argentina’s economic overhaul under President Milei shows early signs of success

on May 30, 2024
  • Argentina has achieved first budget surplus since 2008 under President Milei’s economic reforms.
  • Significant foreign investments announced, including a $50 billion LNG project with YPF and Petronas.
  • Monthly inflation reduced from 25.5% in December to 13.2% in February, signaling early stabilization.

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Since taking office in December 2023, President Javier Milei has implemented a series of aggressive economic reforms aimed at stabilizing Argentina’s beleaguered economy.

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His “shock therapy” approach, deeply rooted in free market principles and fiscal restraint, has yielded notable results, including the first budget surplus for Argentina since 2008 and a significant reduction in monthly inflation from 25.5% in December to 13.2% in February.

Addressing chronic overspending and monetary instability

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Argentina’s persistent economic crises have been characterized by high inflation and chronic overspending, leading to multiple sovereign debt defaults.

Under Milei’s leadership, the government has focused on two critical pillars: fiscal reform and monetary stabilization.

The administration achieved a budget surplus in the first quarter of 2024, a remarkable feat given the country’s history of fiscal deficits.

Patricia Krause, Latin America economist at Coface, noted,

The economy is still expected to contract by 2.5% or more this year, but Milei has managed to turn two fiscal surpluses in 2024 and improve Argentina’s international reserves by $10 billion.

Foreign investment and currency control reforms

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Despite the ongoing credit and currency crisis, Milei’s reforms have opened opportunities within traditional sectors such as mining and hydrocarbons.

Significant foreign investments have been announced, including a $50 billion joint project between state-owned YPF and Malaysia’s Petronas to develop a major liquefied natural gas (LNG) plant in Bahía Blanca.

This project is expected to double Argentina’s LNG production capacity and generate $16 billion in annual exports by 2027.

Milei’s administration has also addressed the restrictive governmental currency exchange control regime, known as cepo.

The cepo, which severely limited the amount of funds that could be taken out of Argentina, is expected to be revoked within the year, fostering a more favorable environment for foreign and corporate investments.

Privatization agenda and sector-specific growth

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Milei’s ambitious privatization agenda includes proposals to shutter the central bank and dollarize the economy.

While many of these reforms are still pending approval from a hostile Congress, some measures have already been implemented.

The devaluation of the Argentine peso by 54% against the dollar has stabilized the currency and aligned it more closely with market rates, reducing uncertainty for corporations and improving operational feasibility.

Ramiro Ferrari, CEO of Brazil’s Gulf Oil, emphasized the potential of Argentina’s natural resources, stating,

Argentina has one of the largest nonconventional shale oil and gas reserves in the world, and they are just beginning to be exploited.

Long-term outlook and challenges

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While Milei’s reforms have shown early signs of success, challenges remain. Annualized inflation is still high, expected to peak midyear but projected to decline sharply by July, potentially reaching double-digit levels by the first quarter of 2025.

A recent study by analyst firm BMI indicated that inflation hovered around 150% in the fourth quarter of 2023 and peaked at 272% early this year.

However, Argentina’s highly skilled workforce and the potential for growth in traditional export sectors such as meat, soybeans, wheat, and corn offer a promising outlook. Besmedrisnik predicted,

There should be a swift recovery of the meats export business, but also soybeans, wheat, and corn, which suffered from weather-related problems in 2023. Mid- to long-term, lending and credit services will become very attractive.

Argentina Economic