[Economics] Halftime for Argentina under Milei - Recession, De-Industrialization, Unemployment and Poverty

Siehe auch:
[Wirtschaft] Halbzeit für Argentinien unter Milei - Rezession, Deindustrialisierung, Arbeitslosigkeit und Armut

Javier Milei (La Libertad Avanza/LLA) has been President of Argentina since December 10, 2023 and is at half of his term. As president and supposed revolutionary Milei (LLA) is becoming increasingly popular. Here the previous development of Argentina should serve as a basis for evaluation instead of promises. After about two years of governing current figures and several measures by Milei (LLA) it can be seen that his policy has caused massive damage to the economy and the only success in the form of a lower inflation rate was only achieved under large sacrifices.

Recession and De-Industrialization

With GDP as the most prominent essential key figure and according to the current figures the Argentine economy has shrunk in 2024. With year 2024 being his first full in office GDP recorded with a real growth of -1.98%. This already provides a foretaste of how little is achieved and how much damage has been done.

[1]

In addition industrial production (semi finished products, machines and systems) has literally collapsed since Milei (LLA) took office. This decline is comparable to that of 2020 during the pandemic although the current de-industrialization is longer and with a lower maximum value. This decline is particularly devastating because labor productivity increases primarily in industrial production. Future economic growth therefore shrinks by the amount of labor productivity in the industrial production that no longer exists.

[2]

Similar to Germany myths and errors are also evident in the Argentine foreign trade record. The current foreign trade surplus is often praised and attributed to Milei (LLA). In retrospect until at least 2020 clearly before and without a Milei (LLA) Argentina usually had a foreign trade surplus. And even if Argentina would try to achieve growth from abroad with export surpluses then this would be a hopelessly slow undertaking with an export rate of only 10.3% in 2023 and 12.6% in 2024.

[3] [4] [5]

Combating Inflation at the expense of its own Population

Just as it is now Argentina is also expected that the state makes a surplus and best takes more than it spends. Logic and empiricism are opposed to the expectation that this leads to economic growth. If neither the private household sector nor companies can generate demand in an economy then only the state sector can generate demand. In a system in which nothing else changes every saving leads to a reduction in demand. As described above the sector foreign/current-account cannot keep up with this gap in demand. And if the sector corporations does not indebt/invest during a poor economy then the sector state can and should indebt/invest in order to fill the lack of demand.

In 2020 during the pandemic the low point for the Argentine GDP is marked. In fact the budget deficit of 8.5% in 2020 was followed by a reversal of GDP from shrinking to growing. As a result the Argentine economy shrank. However the budget deficit has been around 3% since 2021. And just as the high budget deficit followed a recovery from GDP a stagnating GDP follows the low budget deficit.

[6]

Milei (LLA) is often attributed to have fought inflation. In the month of him taking office the inflation rate rose to 211.4%. And in this period the inflation rate also rose to up to 292.2% in April 2024. It is obvious that this is a price shock as a result of the poor economic situation. If production collapses and thus reduces the supply then it can be assumed that prices rise. But since industrial products do not exist in a vacuum but are dependent on other industrial products and the demand from the population the delayed dimished demand has in turn shrank the inflation rate. Thus the government of Argentina has combated inflation with poverty and recession.

[7]

In addition Milei (LLA) with his politics as a whole is promoting a reduction in demand. On the one hand the Milei (LLA) government has increased the pensions below the inflation rate which can be seen by the massive protests of the pensioners in the country. This reduction in the pensioners' income inevitably leads to a reduction in demand and is certainly partly responsible for the long-term lower inflation rate.
And almost everywhere but especially in the libertarian spectrum the reduction in real estate prices since 2024 has been praised as a result of the termination of price controls on the real estate market. This inevitably contributed to a long-term lower inflation rate. However it is absurd to believe that massively new properties have been created on the real estate market within less than a year. On the other hand it is logical that the poorer economic situation and lower demand have led to bankruptcies as well as ending housing contracts and as a result an oversupply due to vacancy occured. [8] [9] [10] [11] [12]

As if it were not enough to act in such a way against the interests of their own population the Milei government (LLA) is now also pursuing the so-called "Achor-Approach" against a high inflation rate. For this purpose Argentina buys its own currency the Argentine peso with foreign exchanges to increase its exchange rate. Then imports become cheaper in Argentina and are increasingly competing with local goods. In addition exports from Argentina become more expensive and are increasingly competing with goods from other countries. In this way companies can be put under price pressure and consequently employed people under wage pressure. How long the Argentine economy withstands this pressure and when the inflation rate is seen as low enough is open. There will be probably more bankruptcies, unemployment and poverty. And it is possible that the perseverance of the Argentine economy is less than the will of the Milei government (LLA) to reduce the inflation rate. [13] [14]

The prerequisite for this "Anchor-Aproach" is a loan over 20 billion US Dollar in foreign exchanges by the International Monetary Fund (IMF) which is particularly unpopular in Latin America. And as a prerequisite for the IMF loan Argentina was required to abolish capital controls. This is happening while Argentina continues to maintain a high key interest rate of currently 29%. This creates the conditions for carry trade. [13] [14] [15]

This involves borrowing money in a low-interest currency and then investing it in a high-interest currency to earn the difference. Carry-Traders can make a profit as long as the interest rate differential exceeds the currency's depreciation. Internationally this is often referred to as emerging markets since money flows into the high-interest country. But then investments are confused with speculation. In addition Carry-Trades drive up the exchange rate of the currency of the high-interest country because demand for that currency has increased. There is therefore no market mechanism that prevents Carry-Traders and their disastrous consequences.

More Unemployment and more Poverty

Economic and financial policy should neither have beautiful key figures as well as the interests of companies as an aim, but should increase the prosperity of the population. But the result of this policy for the population of Argentina can be referred to as a disaster. So the unemployment rate has dropped before Milei (LLA) took office and then rose to a new high.

[16]

In addition the quota of those affected by poverty has risen dramatically with Milei (LLA). As of 2024 42.5% are affected by poverty. The proportion of poverty has increased by 34% since taking office. This development alone is unique in the observed period and shows exemplary the destructive power of Milei (LLA).

[17]

The Alternative

Argentina is not lost or a hopeless case. But instead of acting at the expense of its own population and economy the Argentine government should introduce price controls to break the wage price spiral to reduce the inflation rate. The Argentina has not an inflation caused by scarce resources or full employment. The paths already taken here should be rejected due to the bad results.
The capital controls should be reintroduced immediately. If Carry Trade is established this will probably be misinterpreted as an emerging markets and a financial crisis in Argentina is becoming increasingly inevitable.
Furthermore Argentina should definitely start a state fund to avoid the Dutch disease. Here income from the export of raw materials is immediately invested abroad. As a result the demand for its own currency the Argentine peso is reduced or less increased with higher exports of raw materials. This prevent a harmful reduction the competitiveness of the Argentine economy.
No state fund means that higher exports of raw materials increase the demand for its own currency the Argentine peso and cause a harmful increase of the competitiveness of the Argentine economy. This means that exports become disproportionately more expensive and lose competitiveness and that imports become disproportionately cheap and gain competitiveness. As a result exports fall and imports displace the domestic economy.

Src:
[1] Argentina GDP
https://tradingeconomics.com/argentina/gdp
[2] Argentina Industrial Production
https://tradingeconomics.com/argentina/industrial-production
[3] Argentinien - Handelsbilanz
https://de.tradingeconomics.com/argentina/balance-of-trade
[4] Argentina Exports
https://tradingeconomics.com/argentina/exports
[5] Argentina Imports
https://tradingeconomics.com/argentina/imports
[6] Argentina Government Budget
https://tradingeconomics.com/argentina/government-budget
[7] Argentina Inflation Rate
https://tradingeconomics.com/argentina/inflation-cpi
[8] Mindestens 20 Verletzte - Proteste gegen zu geringe Renten in Argentinien eskalieren 2025-03-13
https://www.n-tv.de/panorama/Proteste-gegen-zu-geringe-Renten-in-Argentinien-eskalieren-article25626473.html
[9] Pensioners on the frontline of Argentina's fiery politics 2025-08-21
https://www.france24.com/en/live-news/20250821-pensioners-on-the-frontline-of-argentina-s-fiery-politics
[10] Apartment rents are down and supply is up 170% in Buenos Aires since Argentina scrapped all rental regulations 2024-09-24
https://www.businessinsider.com/rents-apartment-supply-argentina-price-controls-buenos-aires-2024-9?op=1
[11] Javier Milei Ended Rent Control. Now the Argentine Real Estate Market Is Coming Back to Life. 2025-02-19
https://www.cato.org/commentary/javier-milei-ended-rent-control-now-argentine-real-estate-market-coming-back-life
[12] Rents Fall and Listings Increase After Javier Milei Ends Rent Control In Argentina 2024-09-26
https://reason.com/2024/09/26/rents-fall-and-listings-increase-after-javier-milei-ends-rent-control-in-argentina/
[13] Argentina’s Lower House Approves Milei IMF deal 2025-03-21
https://eurasiabusinessnews.com/2025/03/21/argentinas-lower-house-approves-milei-imf-deal/
[14] Argentina secures IMF loan and ends most capital controls in key milestones for President Milei 2025-04-12
https://www.pbs.org/newshour/world/argentina-secures-imf-loan-and-ends-most-capital-controls-in-key-milestones-for-president-milei
[15] Argentina interest rate
https://de.tradingeconomics.com/argentina/interest-rate
[16] Argentina Unemployment Rate
https://tradingeconomics.com/argentina/unemployment-rate
[17] Percentage of urban households under the poverty line in Argentina from 1st half 2018 to 1st half 2024
https://www.statista.com/statistics/1176116/poverty-rate-households-argentina/