Search on TFTC
How Milei is Proving Keynesian Economics Wrong in Argentina

How Milei is Proving Keynesian Economics Wrong in Argentina

May 8, 2024

How Milei is Proving Keynesian Economics Wrong in Argentina

Argentina, a country long plagued by economic instability and debt defaults, is beginning to show signs of financial recovery under the leadership of libertarian President Javier Milei. Recent reports suggest that Milei's aggressive free-market reforms are yielding positive outcomes, challenging the global economic consensus favoring government intervention.

Under President Milei's administration, Argentina has seen a reduction in inflation, which has dropped to 11 percent, with further decreases anticipated. Milei expressed optimism about the trend, suggesting that the rampant price increases that once exceeded 300 percent annually may finally be coming under control.

In a historic moment for Argentina's economy, Milei announced last week that the country achieved its first quarterly budget surplus since 2008, registering at 0.2 percent of GDP. This accomplishment is particularly noteworthy given that Argentina has experienced deficits for 113 out of the past 123 years.

The central bank, which has yet to be abolished as Milei vowed, has cut interest rates three times in the past three weeks. Although rates remain high at 50 percent, this move is expected to positively impact the economy soon. Investors have taken notice, and according to Bloomberg data, the peso has emerged as the top-performing currency in the blue-chip swap market for the first quarter of the year, with bond markets showing signs of rallying.

The outlook for Argentina's economy could improve further in the coming months. Stabilizing prices and a strengthening currency could attract investments to a country rich in natural resources and with competitive wage costs. Milei's promise to tap into vast reserves of shale oil and gas using proven U.S. technologies could potentially lead to an economic boom.

This development comes as a stark contrast to the economic strategies promoted by figures such as the shadow chancellor Rachel Reeves, President Biden, and other proponents of active state intervention and increased regulation. The International Monetary Fund (IMF), which had previously supported past Argentinian administrations with substantial loans, is now witnessing a different approach to economic management.

Despite initial skepticism and predictions of his early exit from office, President Milei has made significant progress. His approach has been characterized by decisive action, including the closure of entire government departments such as the Ministry of Culture, the anti-discrimination agency, and the state-owned news service. Plans to dismiss an additional 70,000 state employees were recently unveiled.

Milei's bold measures also included a significant devaluation of the peso, the removal of rent controls, price restrictions, and state subsidies, and a reduction in workers' rights. These changes, while controversial and initially painful, are beginning to show promising results, such as a 20 percent annual decrease in rents due to increased market supply.

The president's unwavering commitment to promoting freedom, liberalization, and a smaller state has been a cornerstone of his strategy. His reforms, though severe, are presented with the rationale that they will lead to long-term prosperity for the country.

Argentina's experience under Milei's leadership serves as a potential blueprint for economies struggling with stagnation and dependency on government intervention. As the country challenges the prevailing economic orthodoxy, the world is watching to see whether Argentina's trajectory will continue to improve and serve as a model for other nations.

The Telegraph Article


Current Block Height

Current Mempool Size

Current Difficulty