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(Commentary) Argentina’s economic transformation under President Javier Milei serves as a stark warning for Brazil. Milei’s radical fiscal reforms have shaken the nation’s foundation.
His approach aims to cure Argentina’s chronic economic ailments through drastic measures. Milei inherited a country on the brink of hyperinflation with soaring interest rates.
Years of deficit spending and money printing had weakened the economy. Poverty rates climbed as artificial growth masked deeper issues. The new president responded with a shock therapy approach.
He slashed government spending by 30% in his first year. Milei cut 10 ministries and 33 secretariats. He fired 32,000 public employees and reduced education and health budgets.
These cuts extended to social programs and pension increases. Milei halted infrastructure projects and reduced subsidies. He also liberalized the labor market and freed previously frozen prices.
The immediate effects were harsh. Unemployment rose, and poverty rates spiked in early 2024. Consumer spending plummeted by over 20% in a year. The World Bank projected a 3.5% GDP contraction for 2024.
However, Milei‘s strategy achieved its primary goals. Argentina recorded its first primary budget surplus since 2008. Monthly inflation fell from 25.5% to 2.4% by November 2024.
Argentina’s Economic Turnaround
The central bank slashed interest rates from 133% to 32% annually. These improvements signaled a potential end to the economic crisis. Job creation began in August, and private sector wages started rising in real terms.
Argentina secured a $40 billion IMF deal, boosting investor confidence. The stock market showed optimism, and credit availability increased. GDP growth projections for 2025 now stand at 5%.
Milei plans to deepen his reforms. He aims to privatize state companies and reduce taxes. A new “currency competition” scheme will allow transactions in any currency, including dollars.
The president’s approval rating remains above 50% despite the harsh measures. Argentines seem to accept the need for change, even at a high short-term cost.
Milei’s approach highlights the dangers of unsustainable public spending. It suggests that delaying necessary fiscal adjustments only worsens eventual impacts. Brazil would do well to heed this lesson and avoid similar economic chaos.