Learning This Week: The remarkable turnaround in Argentina
Every week I learn something interesting about a topic.
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The Problem in Argentina
Argentina is grappling with significant financial challenges from persistent fiscal deficits, soaring inflation, and a looming debt crisis. As of 2025, Argentina faces over $14 billion in debt maturities while its Central Bank's net reserves are reportedly negative. The country has a history of economic turmoil, with inflation rates averaging around 190% over the past decades, leading to a decline in per capita income by 10.4% in the last decade. This situation has been made worse by the country’s reliance on taxes, complex capital controls and multiple exchange rates to manage currency depreciation and fiscal imbalances.
The Response
In response to these pressing issues, President Javier Milei's administration has implemented a stringent economic strategy aimed at restoring fiscal discipline and investor confidence. Central to this approach is a zero-deficit budget for 2025, which mandates that government expenditures do not exceed revenues. This marks a significant shift from previous policies characterized by overspending. To support this initiative, the government has also eliminated money printing by the Central Bank and introduced a tax amnesty plan that reportedly generated over $22 billion in new financial inflows. These measures are designed to stabilize the economy, control inflation—which is projected to drop from 211% in 2023 to below 30% in 2025—and improve the overall financial health of the nation.
Since taking office just over a year ago, Milei halted nearly all public works and transfers to the nation’s provinces, slashed pension expenditures and public salaries, weaned the country off generous energy and transport subsidies and hacked away at more than 30,000 government jobs. Milei achieved the drastic cuts with slim minorities in both houses of Congress and even vetoed two bills passed by wide margins that would have increased spending on pensions and higher education last year.
The Results
So far, the results of these actions have shown some promise. Economic activity began to rebound in late 2024, with GDP growth of approximately 3.9% reported between July and September compared to earlier quarters. The peso appreciated by over 40% against the US dollar within a year, suggesting some stabilization in currency values.
The International Monetary Fund expects Argentina to grow 5% in 2025.
However, these reforms have not come without costs; significant public sector job losses and reduced real wages have raised concerns about social stability. The government's ability to maintain fiscal discipline while fostering economic growth remains critical as it navigates through these reforms in 2025.
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