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How Javier Milei Slashed Argentina’s Inflation by 95%

How Javier Milei Slashed Argentina’s Inflation by 95%

Jul 1, 2024

How Javier Milei Slashed Argentina’s Inflation by 95%

In a striking display of political acumen, Javier Milei, Argentina's rising libertarian populist, has clinched a substantial legislative win as the opposition-dominated Senate ceded ground on a series of crucial reform bills.


When Javier Milei assumed office in December, Argentina was grappling with a colossal budget deficit, contributing to a monthly inflation rate of approximately 25%, or an annualized figure of 1355%. The country's reserves were depleted, leaving the Argentine peso without substantial backing. Within a mere seven months, Milei orchestrated what many would deem a fiscal miracle. He not only reversed the budget deficit into a surplus but also slashed the monthly inflation rate to a modest 4.2%, translating to a staggering 95% reduction in annualized inflation.

Despite Milei's popularity, his victory was not without contention. The left's vehement disapproval manifested in riots and the tossing of Molotov cocktails, even as the Senate proceeded with the vote. Nevertheless, Milei's widespread approval appeared to overshadow the unrest, convincing the opposition to overlook the dissent of their agitated constituents.

Although the opposition managed to excise approximately 400 clauses from the legislation, the bills that passed granted Milei extensive, albeit temporary, authority over pivotal sectors: energy, economic, and financial matters—the so-called "big three." These powers are critical as Milei confronts the formidable challenges of poverty and central bank reform.

Poverty has seen a temporary uptick due to cuts in government spending affecting bureaucrats, NGOs, and construction workers. Addressing this issue hinges on easing regulations and taxes for small businesses, encouraging a proliferation of street vendors, pop-up restaurants, and various personal and business services. Milei's focus on empowering small business is seen as a vital strategy for rapid and cost-effective job creation, particularly in economically struggling nations.

Turning to the central bank, Milei had floated the idea of dismantling it and abolishing the peso during his campaign. Presently, he seems to be favoring a dual legal tender system where the peso and the dollar would operate concurrently—a cautious step compared to El Salvador's dramatic switch to the dollar and Bitcoin. Milei's prudence is likely due to ongoing negotiations with the IMF concerning Argentina's external debt and the potential upheaval that a complete currency overhaul might precipitate.

Milei, along with El Salvador's Najib Bukele, is forging a new brand of market-friendly populism that echoes the economic models of Asian countries like Taiwan. This approach champions free-market principles for entrepreneurs and small-scale businesses while eschewing the corrupt corporatism that has long plagued Latin America—a trend now worryingly replicated in North America and Europe. Milei's strategies could have profound implications not just for Argentina or Latin America, but also for affluent nations that may have lost sight of the foundational principles of their prosperity.


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