Today, we look at Argentina, a nation once celebrated as the “Breadbasket of the World”, with Buenos Aires, its capital, hailed as the “Paris of South America.” Decades of economic mismanagement, structural weaknesses, and political instability have left the country grappling with soaring inflation, a currency in freefall, and widespread poverty by the end of 2023. Amid this turmoil, an outsider to traditional politics, Javier Millei, rose to the Presidency with bold promises of sweeping reforms. Known for his fiery slogans, such as “¡Que se vayan todos!” (“They all must go”) and “Viva la libertad, carajo!” (“Long live freedom, damn it!”), Milei brings both radical ideas but also deep and structured knowledge of economics, and an unabated love for freedom, in all its forms. In this blog, we review his administration’s progress one year into office, exploring the impact of his unprecedented policies on Argentina’s troubled economy.

The History

To fully understand what has happened in Argentina up to this point would require reading whole volumes of books. However, a shorter, more concise overview can be made. At the beginning of the 20^th century, especially before and during WW1, Argentina was one of the world’s most developed and prosperous countries, rivaling the likes of France, Germany, and Canada.

However, throughout the 20^th century, the country faced many challenges, exposing structural weaknesses beneath the surface. Unlike the US or Western European countries, Argentina was far too dependent on exports, especially in agriculture. It also failed to industrialize properly and was hit hard by the Great Depression of 1929. Furthermore, many countries implemented protectionist policies, further reducing imports from Argentina, and as the final nail, a coup took place in 1930, leading to a long period of political instability and weak governments.

Through the rest of the 20^th century, the country faced periods of populism under Perón (later known as Perónism), who ironically, was ousted from power the same way he came to it – through a coup. In total, the country faced 6 coups during the 20^th century. With these populist leaders, protectionism across the world, and the lack of industrialization, among other factors, Argentina accrued a significant amount of debt, as well as inflation. This turned to hyperinflation at specific points, but the worst brunt on the economy was in the 2nd half of the 20th century, especially in the ’70s, ’80s, and ’90s. As a result, Argentina defaulted on its debts in 1989, and while many different attempts at reform were made, none of them ever truly went far enough.

During the 21st century, additional reforms were attempted. However, by the 2010s, Argentina required assistance from the IMF, such as the largest bailout in IMF history, of USD 57bn, which in the end, failed to stabilize the economy. The COVID-19 pandemic made the entire situation even worse, with GDP contracting sharply, and the poverty rate surpassing 40%. By 2023, the annual inflation exceeded triple-digit levels, the peso was in freefall, and the foreign reserves were depleted.

To understand just how dire the situation was, let’s look at some numbers:

Argentine GDP (1962 – 2023, USDbn)

Source: World Bank, InterCapital Research

Since 2010, the Argentine cumulative nominal GDP growth rate has been 51%, below the world’s average cumulative rate of 58.6%. Of course, this does not take into account the high volatility, during which this growth was achieved.

Argentine fiscal balance (% of GDP, 1993 – 2023)

Source: Argentine Ministry of Economy, Argentine Treasury Department, InterCapital Research

Furthermore, out of the last 30 years, the country experienced only 5 years of a fiscal surplus. As such, much of the fiscal balance was financed by debt, as well as the extreme money printing by the Central Bank of Argentina.

Argentine money supply (MO) (1992 – October 2024, ARSbn)*

Source: Central Bank of Argentina, InterCapital Research

*Values until 2020 represent year-end values

In fact, since the introduction of the Peso in 1992, the Argentine money supply grew by over 87,264%, while compared to October 2024, this ballooned to over 206,264%!

Argentine annual inflation rate (1991* – October 2024, %)

Source: INDEC, World Bank, InterCapital Research

*1990 experienced a significant 2,314% annual inflation rate, and for clarity purposes, the graph is from 1991

As we could have seen in the news and felt in our wallets for the last couple of years, even a several p.p. higher inflation than the average can cause significant disruptions. The situation in Argentina then, seems like out of this world.

Argentine Peso (ARS) to USD exchange rate (1992 – November 2024)

Source: Central Bank of Argentina, InterCapital Research

With all the money being added to the system, and the subsequent inflation, a significant depreciation of the currency occurred. At the time of its introduction, the peso was tied 1:1 to the USD. As of the end of 2023, it stood at 295.5 ARS/USD, having grown even more significantly to over 998 ARS/USD as of November 2024, and having grown over 1,000 ARS/USD as of the latest data in December. However, it should be noted that this depreciation came due to the devaluation of the official exchange rate by decree, rather than market dynamics alone.

Argentine foreign currency supply (1992 – October 2024, USDbn)

Source: World Bank, InterCapital Research

This was also reflected in the foreign currency reserves, which while they were stable, after what happened with inflation and depreciation of the peso, have reached a 20-year low of USD 16.8bn in January 2024.

Where It All Ended Up

This is the situation that faced the new Millei administration in December 2023. Even though the new president has been called many names, known for his slogans and vigor, it is undeniable that a radical change was needed. Despite the media’s portrayal of the new president as a radical, one cannot mistake his economic knowledge, having a master’s degree in economics and economic sciences, as well as having taught as an economics professor for years. In fact, President Millei published over 10 books and numerous articles on economics.

Of course, to implement the changes that were required, a “shock therapy” was needed across many sectors of the economy. This is visible from many of the charts above that go into 2024, and many more data points not listed here for clarity – unemployment rate, poverty rate, etc., which also got worse as these new measures were implemented. But like a bitter pill to swallow to feel better later, Argentines’ approval ratings of President Millei have remained stable since his inauguration with some volatility, but this is still a feat that’s often impossible for most politicians.

So what has the Government achieved thus far? They’ve implemented austerity and state reduction measures, with the removal of subsidies in sectors such as energy and transportation. App. 35k public sector employees were laid off, while multiple government agencies were closed, with their operations moved to the institutions that remained. During the election campaign, President Millei promised a 90% reduction across all tax categories, and with several moves already implemented during 2024, the reduction thus far amounted to 19.5%. The Government also plans to introduce a system of allowing transactions with multiple currencies, to enhance monetary freedom and stability. Of this, the measures include certain legal framework adjustments, such as easing of FX restrictions, as well as easing transactions in foreign currencies. Market reforms were also made, with efforts underway to eliminate distortive exchange restrictions and multiple currency practices.

On the trade and economic front, the Government has initiated the privatization of state-owned enterprises, while at the same time, it has started negotiating a free trade agreement with the US, as well as seeking greater freedom within the South-American Mercosur trade block. On the legislative side, the Argentine lower house approved President Millei’s comprehensive economic reform bills, including supporting the zero fiscal deficit plan and efforts to attract foreign investment. Furthermore, President Millei has implemented a reduction in regulations, having stated recently on a podcast that his Government is reducing between 1 and 5 regulations each day since taking office.

Besides economics, the focus of the administration has been on freedom in all forms, which includes freedom of the press, freedom of speech, etc.  The result? While it is too early to say, some indicators can help us:

Argentine fiscal balance (ARSbn) and surplus/deficit as % of GDP (January 2024 – October 2024)

Argentine Ministry of Economy, Argentine Treasury Department, InterCapital Research

As we can see, despite the challenging situation, Argentina achieved a fiscal surplus in April 2024, for the first time since 2007. One other indicator that has been on the minds of Argentines is inflation – but in this case, the monthly one. This is due to the significant inflation that the Argentines experienced, with a monthly inflation rate that is usually higher than annual inflation rates in most countries around the world.

Argentine monthly inflation rate (2021 – 2024, %)

Source: INDEC, InterCapital Research

While the year started rough, the monthly inflation rate has recorded significant improvements, indicating that the measures, even though painful in the short-term, are working towards a long-term solution. This is also evident by President Millei’s approval ratings, which stood at 55.6% at the time of the election, having increased to app. 60% at the beginning of 2024, before decreasing to 50% at the mid-year, before finally recovering to app. 55% by the end of the year. Also, even the indicator which seems to be going bad – such as the ARS depreciation to the dollar, does not tell the entire story. For example, in July 2023, the”blue dollar” (black market ARS/USD exchange rate) amounted to ARS 552/USD, nearly double the official rate of ARS 284/USD at the time. In December 2024, the blue dollar rate stands at app. ARS 1,050/USD, while the official rate is also slightly above ARS 1,000/USD.

In other words, the measures seem to be working, and the people are understanding the urgent need for radical reforms. 1 year in office, most predictions and estimates said that it would take far longer to see changes, however, as we can see, this hasn’t proven to be the case. Furthermore, while the GDP is expected to contract by 3-3.5% in 2024, a 5-6% growth is estimated in 2025.

Besides the great results, Argentina is also positioned well as an energy supplier, especially in the context of 1.) increasing demand as world economies grow, and 2.) the current energy paradigm in Europe. In fact, Argentine oil reserves amount to app. 2.82bn barrels as of 2023, with a total recoverable amount of 4bn barrels, while the natural gas reserves are estimated at app. 400bn cubic meters.

Of course, when compared to other players in the world, Argentina is tiny. However, the current administration also reduced state intervention in the sector, promoting a free-market approach, thus leading to the expectation of app. USD 15bn of investments in the sector in 2025. Efforts are also underway to improve the infrastructure, such as pipelines. Lastly, Argentina signed agreements with the EU to cooperate on renewable energy projects, including hydrogen. If everything goes as planned, Argentina could become a more important player in the European energy mix.

Overall, the Argentine example of leadership and recovery is one that many other countries and politicians should pay close attention to. Efforts in this sense did already occur. In the US, it is said that the newly announced Department of Government Efficiency (DOGE) led by Elon Musk and Vivek Ramaswamy is closely monitoring and communicating with their Argentine counterparts.

In other words, no matter how dire the situation is, there are always things that can be done, as we are defined by one trait – adaptability. The only thing lacking then, is the political will (and backbone) to do what is needed for long-term prosperity, something that lacking across most countries of the world.