Slashing the State

Javier Milei’s rise to the presidency of Argentina came with all sorts of promises for economic, political and cultural repair. In one campaign speech in the run up to the October 2023 election, Milei claimed that should his party, La Libertad Avanza (Liberty Advances), come to power, “Argentina could reach living standards similar to those of Italy or France in fifteen years. If you give me twenty years,” he went on, “Germany. And if you give me thirty-five years, the United States.” When he did in fact come into office in December of that year, he did so with a bold political agenda but little congressional support; La Libertad Avanza won just 15 percent of seats in the Cámara de Diputados and 10 percent in the Senate, both of which remained dominated by Peronists on the one side and Juntos por el Cambio (Together for Change), the coalition that led Mauricio Macri to the presidency in 2015, on the other. The promises had been large but, though victorious, Milei had been granted a tight space in which to maneuver. 

Milei’s popularity was premised on his reputation as a staunch market radical and his apparent position against Argentina’s political elite. In presidential debates, he warned against “the damned caste” that, he claimed, “in fifty years would turn Argentina into the biggest slum in the world.” Corrupt politicians were keeping the public hooked on state handouts so as to keep themselves elected. In turn, the system produced budgetary deficits that led to rising debt or excessive money printing, driving inflation and economic collapse. 

The solution he proposed was a radical deregulation of the economy, focusing on a reduction in public spending and taxes. Corrupt politicians and their cronies would pay the consequences and honest, working people, Milei said, should not be concerned. At the same time, Milei proposed a series of entirely unrealistic measures that would “make Argentina great again.” These included dollarizing the economy, closing the Central Bank, severing diplomatic relations with China and implementing a voucher-based education system.

Although most of these proposals were quite obviously impossible to implement—and indeed would never be attempted—they were an important feature of Milei’s winning pitch to voters, who were exhausted after more than a decade of deep economic malaise. In the end, his gambit worked. After obtaining just short of 30 percent of the vote in the general elections in October, he won almost 56 percent at the run-off three weeks later. He was roundly backed by big business, interested in deregulating the labor market and eager to see tax reductions, but by sections of the working class too.¹

The newest shock

Since coming to power just over a year ago, Milei has presided over an intense economic shock. Quick off the block, the new government announced a drastic devaluation of the peso, which had an almost immediate negative effect on real wages; by February they had dropped significantly; those in the public and informal sectors bore the brunt of this decline. 

With wages failing to keep pace with rising prices, purchasing power dropped sharply. Then came the slashing of public spending. Milei famously promised to “take a chainsaw to the state,” and that he did, cutting government spending from 44 percent to 32 percent of GDP. The largest savings came from cuts to pensions, public works, public-sector salaries, energy and transport subsidies, and social programs. Perhaps most radically, the government has turned off the tap on all public infrastructure funding, including essential projects—like the expansion of a critical gas pipeline—that were already underway, but have now had to be halted. Thousands of public servant jobs were cut, often without clear criteria as to where and why particular cuts were being made. These measures were effected with notable cruelty; some public servants learned they had been fired only after arriving at their offices. Amid these actions, Milei used an executive order to push through pension reform. This in conjunction with the elimination of price controls on certain medicines meant that the cost of living for the elderly increased sharply. In February 2024, the government announced reductions in subsidies for utilities and public transportation and a spike in prices quickly followed—contradicting an explicit campaign promise. 

Amid these macroeconomic adjustments, the government also rushed to put through an Executive Order, or decreto, which would allow it to bypass Congress. It was by decreto that the government cancelled rent controls, allowed soccer clubs to become private companies, and removed price controls. Congress could not be leapfrogged entirely, however, especially when it came to reform on labor regulation and on taxes. An omnibus bill, the Ley de Bases, was introduced by Milei with the intention of achieving far-reaching transformation, from national defence to economic regulations. When this failed to achieve congressional approval, it became clear that certain alliances would have to be made in Congress. 

Conciliatory alliances

Juntos por el Cambio, the coalition that governed Argentina under Macri, was the obvious choice for such an alliance. Not only had Macri voters overwhelmingly supported Milei in the run-off election, Milei had reciprocated by appointing Macri’s 2023 presidential candidate, Patricia Bullrich, as the head of the Ministry of Security. He also placed other former members of Macri’s government in key positions, including appointing Luis Caputo as Minister of Finance. Both the macristas and La Libertad Avanza shared basic assumptions: Argentina was in need of shock therapy, and Peronism must be purged. This turn toward Milei on the part of former macristas is in part explained by the fact that many in Juntos por el Cambio felt that the Macri government had not gone far enough in restructuring the Argentine economy. More significant, however, was the pressure applied from business interests, which were leading the charge against Peronism, particularly Cristina Kirchner. 

With regard to Milei’s campaign promise to sever diplomatic relations with “Communist” countries like China and Brazil, it was basic pragmatism that put an end to such ideas. Argentina’s heavy reliance on a swap arrangement with China for accessing Central Bank reserves would make such a move almost impossible. After facing pressure from the Chinese government to cancel part of the agreement, the Argentine government was forced to issue a diplomatic apology. Even so, it took until June to secure an extension of the swap. More recently, Milei attended the G20 meeting in Rio de Janeiro, where he shook hands with Brazilian President Lula da Silva—whom he had previously insulted publicly.

On the economic front, instead of lifting capital controls as promised, Milei maintained the restrictions—the “cepo”—inherited from the previous two administrations. Concerned about the devastating effects that another peso devaluation could have on local prices and, consequently, on consumption, the government doubled down on these capital controls and introduced a new strategy based on the monetary approach to the balance of payments. This system, known as a crawling peg, established monthly 2 percent devaluations aimed at forcing convergence between inflation and the dollar’s exchange rate. Curiously, the same strategy was implemented by Argentina’s last dictatorship between 1978 and 1981, with disastrous consequences. Notably, the architect of that plan was Ricardo Arriazu, one of Milei’s most revered mentors. The strategy gained a lot of support from the financial sector, which itself stood to gain from the fixed devaluations of the peso. 

More open to political negotiations in Congress, Milei’s government was able to pass its omnibus law, Ley de Bases, in July. The law had initially failed to pass through Congress but compromises were ultimately made to see it through. The law no longer included the privatization of YPF, Argentina’s national oil company, and the national rail system, and it softened the delegation of extraordinary powers to the president. This Congressional victory was one example of how Milei’s administration adopted a two-pronged strategy. On one hand, it used the promise of increased national resources—or the threat of reducing them—to secure new votes in the Senate. On the other hand, it collaborated with representatives from Macri’s coalition to advance reforms supported by both parties. Despite the anti-populist rhetoric deployed by Juntos’s candidate against Milei in 2023, by 2024 common ground was identified and comfortably shared.

What effect have these reforms had? Economic and social indicators continued to show meager results during the first half of 2024, with poverty rates climbing to 52.9 percent—an 11 percent increase from the second half of 2023. While measuring income poverty in countries with high inflation regimes involves significant methodological challenges, the sheer magnitude of this increase speaks for itself. This in turn led to a sharp decline in consumption and economic activity, and a further deterioration of the standard of living. Although the worst of the recession occurred in January, immediately following the currency devaluation, the situation failed to improve during the first eight months of the year. Industrial manufacturing, construction, and retail were particularly affected.

Inflation—Milei’s great bugbear—did decline during the first half of the year, but with little consequence for most people; the Consumer Price Index between June and August appeared to have bottomed out at a monthly rate of 4 percent—still extremely high. Rising prices created pressure for another devaluation. However, the government remained firm, maintaining the monthly 2 percent crawling peg out of concern that a new inflation spike could damage its public image. The artificially “cheap” dollar put additional pressure on the Central Bank’s reserves, which were already under strain due to falling international prices for key Argentine exports like soybeans and corn. While the government managed to improve reserve levels during its first months in power, progress slowed after it prioritized keeping the dollar’s exchange rate in line with its pre-announced schedule of devaluations.

Culture war

Milei’s outspoken views on left-wing ideas were never hidden: he had openly threatened left-wingers, expressed his opposition to abortion laws, and dismissed climate change as a lie—a theme to which he dedicated much of his speech at Davos in January. Unlike on economic issues, where Milei’s agenda made swift concessions to macrismo, his cultural and ideological crusade only escalated once in power. The first target was the national public university system. Milei had already frozen university budgets, which, amid inflation, effectively meant defunding them. Research funding, already scarce, disappeared entirely, while professors’ wages, like those of most workers, fell far behind inflation. By October, the war on universities was expanded when the government, with its supporters in tow, began referring to universities as “left-wing indoctrination centers” and falsely claimed that they refused to be audited.

In its cultural war, Milei’s administration has an army of foot soldiers—mostly young men. At the core of this sits an organized group dedicated to intimidating political opponents, doxing individuals on social media, and amplifying the hate speech coming from above. Over time, this group has gained traction, consolidating its influence in the launch of its own streaming channel, Carajo, which is funded by some of the same backers who supported Milei’s presidential campaign, along with young media owners eager to expand their profits by targeting a new, untapped audience. With most of the shows hosted by men, Carajo became a radical platform that echoed some of the government’s most reactionary ideas; LGTBQ+ rights and climate change are both prominent targets. Many of these streaming “stars” have gone on to form a political movement claiming to be the government’s “militant branch,” and declaring itself ready to defend it at any cost. 

Threats of state repression have been gathering, too. Various police forces have been empowered to further intimidate protestors and discipline social movements and opposition parties. Tactics include employing speakers at transport stations to denounce demonstrators and urge people not to join rallies. Things escalated further in October, when the government repurposed Mi Argentina—an app first created during the pandemic to store IDs, driver’s licenses, and other personal information—to send messages opposing unions organizing a transportation strike.

By November, Milei’s shock therapy looked to be yielding some of its intended results. The tax amnesty campaign initiated by the government saw around $20 billion held by Argentines outside the national banking system flow back into the country. As capital returned, market indicators improved and the government in turn was able to maintain the crawling peg at around 2 percent. Inflation dropped below 3 percent in October and kept on falling. Despite coming at the expense of plummeting real wages and a severe recession, many Argentines, exhausted from years of high inflation, have celebrated. A gallup poll conducted at the end of last year shows that economic optimism is rising, with 53 percent saying that their standard of living is improving—the first time the percentage has inched above the majority line since 2015.

Brimming with confidence, the government has in recent weeks announced that it will push for the complete deregulation of public transportation as well as a relaxation of gun control policies.

Looking ahead

Congressional elections are set to take place in 2025, at the same time as significant debt payments are due. Even if the government succeeds in keeping inflation and the US dollar under control, other factors—such as a devaluation of the Brazilian real or shifts among key competitors for Argentine exports—could still cause havoc. For its part, the agricultural sector is ready to push for a new devaluation of the peso that could benefit the value of its exports. Other sectors exporting services, like software programing, are already beginning to see what a “cheap dollar” means for incomes. As Argentina becomes more expensive in dollars, European and American companies are beginning to turn elsewhere for their foreign “digital nomad” laborers. With the lowest exchange rate in decades, Argentines are likely to flood Brazilian and other foreign beaches, while international tourism to Argentina is expected to further nosedive.

Though the economy remains vulnerable, success in managing inflation means that Milei will likely perform well in the upcoming congressional elections, which would in turn give his government greater political leverage. Even if the government doesn’t perform well, it is likely to increase its seats in Congress; the few representatives they have won’t run for reelection until 2027. The return of Donald Trump to the White House has further bolstered the morale of local mileistas. Beyond the obvious political alignments, Trump could pressure the IMF to offer Argentina a better deal and more favorable payment schedule, as it did for Macri in 2018.

After a year in government, it seems rather than simply trying to follow in the footsteps of the US or Europe, Milei is interested in transforming Argentina into something else. A country with a long tradition of strong middle classes, limited inequality, and the provision of basic public services by welfarist policies, Argentina is now facing the possibility of losing the already damaged institutions that underpin the country’s success vis-à-vis other Latin American economies during most of the twentieth century. The dismantling of the welfare state, the attempts to promote tax benefits for the rich, and the complete deregulation of the economy risk turning Argentina into a country where economic growth is guaranteed by low salaries and a total lack of regulation over foreign companies. The combination of such a model with the deterioration of state capacities is likely to spell increased polarization in a country that has been living under democratic rule since only 1983. 

Though there has been significant collaboration between Juntos por el Cambio and Milei’s government, a complete political alignment is still a way off—mainly because Macri doesn’t want to give up his political power to Milei. It nonetheless looks like a new political space is forming in Argentina, one that gathers parts of the traditional center-right, neoliberal champions and the far right into something that resembles quite accurately the current US Republican Party. The failure of softer alternatives like the Macri government of 2015–19 has formed the conditions for various factions to come together under Milei’s leadership. For those members of Juntos por el Cambio who have stood apart from the far-right drift, they will need to decide if they cleave to their centrist position, marginal now as it is, or if they will try to build bridges with Peronism and its allies. Peronism, in turn, needs to clarify how much it is willing to give up in order to cement a political alternative that, like the popular fronts in the past, unite dissimilar factions to oppose a greater evil. This does not seem likely in the short term, but a strong performance of the governmental coalition in the 2025 congressional elections might create the incentives for such a realignment. If it happens, although Milei certainly will not make Argentina great again, it will transform its political system into something that looks not dissimilar to the current US political order.