The economy of President Javier Milei’s government showed better results than expected in this first year. Even some members of the government and economists, such as Ricardo Arriazu, who understood the situation at the end of 2023, say that the program is exceeding expectations.
The strength of the contractionary fiscal policy, combined with the reorganization of the Central Bank’s liabilities, with the dollar rising below inflation, with the recalibration of monetary policy in the middle of the year and, finally, with the help of the law that allowed the regularization of undeclared assets and funds by individuals and companies, neutralized the contraction in demand and generated an expansive result that was reflected in the growth of the third quarter of the year and in opinion polls, which show great support for Milei even after a year management and adjust.
The president’s impetus for the adjustment was also a political novelty. And it had economic consequences. Milei started 2024 already warning: “There’s no money.” And, in fact, there was no money for infrastructure works, education and pensions. Primary public spending has fallen by 30% so far and this has been the anchor of the economy.
The counterpart to this film are the sectors and companies that were at the bottom of the table (basically construction and industry). And people who have seen their disposable income fall as a result of the increased burden of public services on wages.
Milei’s plan for 2024 will not solve all of Argentina’s problems. But he managed to stabilize an economy that was in total decline. It is still necessary to define the main rules to know if it will finally recover.
Below is a summary of Milei’s first year of savings.
A survey carried out by consultancy Analytica based on published data shows positive results in the areas of inflation, taxation and finance. And mixed results for family income, consumption and production. Among the most salient aspects of the main variables raised by Analytica are:
Inflation: 2.7% (October/24). A year ago: 8.3% (October/23) and 12.8% (November/23).
Gross reserves: US$30.9 billion (November/24). A year ago: US$ 21.5 billion (November/23).
Net reserves: -US$4.7 billion (November/24). One year ago: -US$10.5 billion (November/23).
Financial fiscal result: 0.5% of GDP (October/24). A year ago: -2.7% (October/23).
Devaluation expectations for November-January: 7.1% for 2024/2025. A year ago: 133.7% for 2023/2024.
BCRA liabilities: US$88.413 billion (October/24). One year ago: US$ 158.533 billion (October/23).
Private M3 (technical measure of the monetary base): US$ 79.778 billion (October/24). One year ago: US$ 97.627 billion (October/23).
Central government gross debt: US$462.552 billion (October/2024) (the government included debt held by BCRA). One year ago: US$418.019 billion (October/2023).
Country risk rate: 750 points (November/2024). One year ago: 2,311 points (November/2023).
Exchange rate difference between the official dollar and the parallel: 16.2% (November/24). One year ago: 147.6% (November/23).
Family income and production:
The index of private salaries with a formal contract fell 3.7%. The level of formal employment fell 2.7% (around 160 thousand jobs).
Latest unemployment rate: 7.6% (second quarter/2024). A year ago: 6.2%.
For economist Ramiro Castiñeira, the economy will fall 2.8% this year, a value very similar to the statistical drag left by 2023 (-2.8%). It is currently slightly higher than in December 2023.
According to the consultancy Opinaia, based on data from the November wave, economic confidence in the last month grew by 7 percentage points. The number of people who believe that Milei will definitively eliminate inflation has increased. When asked about the adjustment the government is making, around 68% of those interviewed said they believe the effort is worth it (this indicator has improved in the last month).
Milei’s economy: why it is considered “bestial”
In March this year, economist and professor at Harvard University, Rafael Di Tella, said that the country was “living a rather beastly way of reducing inflation”. Inflation until then had fallen to 13.2% in February, less than many predicted for that time of year: the forecast was that it would accumulate close to 100% between December/23 and February/24.
A few days ago, economist Ernesto Talvi, Uruguayan and senior researcher at the Instituto Real Elcano, based in Madrid, used the same term: “The adjustment made by Milei was amazing.”
In a seminar coordinated by economist Guillermo Calvo, Talvi explained the similarities between the Argentina of December 2024 and Uruguay at the beginning of the 1990s: high inflation, a fiscal deficit of 5% of GDP, a dollarized economy and a country without reserves that had to resort to the IMF to get out of exchange control (according to Talvi’s calculations, Argentina needs US$16 billion to US$20 billion from the IMF).
Specifically, what did Talvi mean by the term “bestial”?
A 30% drop in primary spending in real terms, a 105.5% increase in the official dollar (December/2023) and a decrease in liquidity that allowed the BCRA to buy reserves and lower the interest rate to reduce the quasi-fiscal deficit (“monetary policy was dramatically contractionary”). Talvi highlighted two more aspects of Milei’s economic policy: the maintenance of exchange control to make the 2% crawl viable, as there were no reserves, and the purchase of dollars by the BCRA, which expanded the monetary supply, a point that Milei usually points out as a self-criticism of your first year.
In mid-July, two IMF staff members, Luis Cubeddu and Ashvin Ahuja, visited Buenos Aires. There was a harsh meeting between Cubeddu and senior government officials, as Clarín reported at the time.
It was clear to the IMF that Milei is not willing to inject pesos into the economy by buying dollars from the BCRA. And much less, as the Fund intends, to adjust the exchange rate to correct the gap in relation to accumulated inflation and, thus, increase the chances of accumulating reserves. The president fears an inflationary spiral.
For Ignacio Labaqui, political analyst, at that moment it became clear that “the government’s gaze is more focused on public opinion than on the market”.
Was it ever different in the Milei era?