Milei's Austerity Is Devastating Argentina

On a recent evening, Micaela Maldano unfurled a blanket in a public park in El Jagüel, a poor suburb of Buenos Aires. On it, the 28-year-old arranged used clothes, a mate tea gourd, and a backpack—secondhand household goods she hoped to trade directly for food. "It's getting harder and harder to eat," Maldano said. "There are tons of people who are hungry." She called the taste of meat, an Argentine staple, a "distant memory."

Maldano is not alone. More Argentines are resorting to desperate measures such as bartering to put food on their tables as the country weathers an economic crisis. Financial tumult has long been part of life in Argentina, which ended 2023 with an annual inflation rate of more than 200 percent. But humble households such as Maldano's have fallen into deeper precarity since far-right libertarian President Javier Milei was inaugurated last December. Maldano rents an apartment with her boyfriend, and the two rely mostly on his salary and informal trades to get by.

Days after taking office, Milei devalued the Argentine peso by more than 50 percent, and already sky-high inflation rates ascended even further. Since then, the cost of gas in Argentina has roughly doubled. Food prices have risen by roughly 50 percent, according to official government data. Health care costs have increased at a similar clip. Around the two-month mark of Milei's presidency, Argentina's annual inflation rate topped 250 percent, surpassing that of Venezuela to become the highest in Latin America.

As the price hikes intensified, Milei slashed subsidies for services ranging from transportation to utilities, honoring his campaign pledge to take a metaphorical "chainsaw" to public spending. The move put even more pressure on Argentines' pocketbooks.

On the campaign trail, Milei—a political outsider—suggested abolishing Argentina's central bank and dollarizing its economy, outlandish proposals that raised eyebrows among observers. But in office, his strategy has so far been more conventional: a fiscal adjustment plan designed to reverse longstanding government deficits through budget cuts and tax hikes. The president has described his austerity package, a significant departure from the Argentine tradition of reckless government spending, as "shock therapy."

"It's a fairly traditional approach to stabilization," said Benjamin Gedan, the director of the Latin America Program at the Wilson Center. "That doesn't mean it's not dramatic and high stakes. … It's an act of either political courage or political suicide."

For everyday citizens, Milei's austerity has been devastating. Salaries and pensions have not come close to keeping up with inflation. Workers' purchasing power fell by roughly 14 percent month-over-month at the end of 2023, a contraction not seen in decades. Demand for food at soup kitchens is surging. A study released earlier this month from the Catholic University of Argentina estimates that the country's poverty rate surpassed 57 percent in January. According to the same group of researchers, 49.5 percent of Argentines lived in poverty in December 2023, when Milei took over. At the end of 2022, 43.1 percent were considered poor.

Sebastián Menescaldi, an economist and the director of the Buenos Aires-based EcoGo consultancy, forecasts that the most painful period of Milei's economic shock is yet to come. Starting this month, utility price hikes will combine with back-to-school costs to wallop families' bottom lines. (In Argentina, summer breaks run from Christmas through February.) In March and beyond, "people will feel like they are drowning," Menescaldi said.

As average Argentines suffer, Milei's strategy has yielded some positive macroeconomic indicators. The peso devaluation has made imports more expensive, slowing them down—and decreasing the amount of money flowing out of Argentina. As a result, the cash-strapped central bank has started replenishing some of its dwindling dollar reserves. Meanwhile, the government posted an elusive budget surplus in January. And although monthly inflation reached a crushing 20.6 percent that month, it was lower than December's rate of 25.5 percent.

But experts agree that the fiscal adjustments that made those trends possible could provoke a looming recession; Milei's spate of spending cuts, they argue, will choke economic growth. The Institute of International Finance, an association of global financial firms, is predicting that the Argentine economy will contract 7.8 percent in the first quarter of this year. The International Monetary Fund, meanwhile, forecasts a 2.8 percent annual contraction.

Milei's administration hopes that a recession will prove short-lived, but Menescaldi said that is unlikely. The economist is forecasting a "strong" upswing in unemployment and a further rise in the poverty rate. Because a gap persists between the official peso-dollar exchange rate and the black-market rate used by most Argentines, Milei might institute another inflationary currency devaluation in the future. Contributing to Argentina's uncertainty are the governance challenges facing Milei, whose fledgling libertarian party occupies a minority of seats in Congress and holds no provincial governorships.

So far, the president has not displayed the political savvy needed to navigate that difficult political terrain. When a sweeping bill that would have deregulated swaths of the economy failed to become law due to congressional pushback, Milei inveighed against opposition lawmakers as "traitors" who "voted against the people." Meanwhile, an attempt to pass labor law reforms via executive order was blocked by the courts. Enacting structural reforms as ambitious as the ones proposed by Milei "takes enormous patience, skill, and willingness to compromise," Gedan said. "It's not clear that [Milei] has those."

Milei has drawn criticism for his apparent lack of focus on the nation's woes. Recent headlines in Argentina have fixated on an ongoing feud between the president and a leftist pop star, who criticized cuts to public funding for the arts and described Milei's rise as "dangerous." And at the end of February, Milei flew to the United States to speak at the 2024 Conservative Political Action Conference alongside other far-right Trumpian acolytes.

Still, recent public opinion surveys show a majority of Argentines continue to support Milei. A poll released at the end of February pegged his approval rating at 52 percent, higher than any other national politician. The president has placed responsibility for households' mounting economic difficulties on his "inheritance" from Peronist predecessors, and the blame game seems to be working. "He still retains a very robust amount of support," said Federico Zapata, a political scientist and the director general of the polling firm Escenarios. Menescaldi added, "Argentine society largely agrees that this fiscal adjustment is something that we had to do."

Time will tell whether the public will remain on board with Milei's reforms as the standard of living deteriorates. Resistance is already building: It took Argentina's largest labor union just seven weeks to call for a general strike in opposition to Milei's government, which took place in January. Rail service workers, health care workers, and government employees walked off the job for additional work stoppages in February. Teachers' strikes have already disrupted the beginning of the school year.

Some experts worry that anti-Milei mobilization could escalate into full-blown social upheaval if economic conditions fail to turn around. On the street, everyday Argentines have begun making concerned references to the 2001 debt crisis, which led to civil unrest and bloody riots. "I think there are going to be lootings, and just really tough times coming up," Maldano said.

In Gedan's view, Argentina is currently "teetering on the edge of a cliff." If the Milei experiment ends in failure, it is difficult to envision Argentines giving another pro-market candidate a chance. "Most people agree that … everything is either going to collapse or, somehow, [Milei is] going to survive politically long enough to show the benefits of his policies," Gedan said. "But just sputtering along on the verge of a crisis doesn't seem to be possible anymore."