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Argentina: Less inflation, more poverty under Milei – DW – 06/22/2024

Argentina’s right-wing populist, economically liberal President Javier Milei has now been in office for around six months.

In a country long mired in economic turmoil, his radical economic plans appealed to voters during the election campaign. The self-described “anarcho-capitalist” is likely to tout the success of his policies when he meets with German government representatives in Berlin this weekend as part of a European diplomatic tour. But experts say results have been a mixed.

‘The right direction’

Argentina has suffered for years from a politically bloated state sector and a structural budget deficit, the latter of which has caused regular debt payment crises and inflationary spurts, says Hans-Dieter Holtzmann of the Friedrich Nauman Foundation in Buenos Aires, affiliated with Germany’s neoliberal Free Democratic Party (FDP).

A tradition of protectionism has also severely damaged Argentina, according to Holtzmann. “A number of points in Milei’s economic policy for more positive economic development in the country point in the right direction: Focus on less government spending and bureaucracy as well as more freedom for companies and free trade,” he told DW.

Less inflation, budget surplus

Holtzmann also thinks Milei has had some success in the fight against high inflation, down from around 25% per month last December to 4.2% this May.

A woman thumbs through a stack of pesos
Monthly inflation has slowed down in Argentina but is still at 290% annuallyImage: Natacha Pisarenko/AP Photo/picture alliance

Milei’s drastic austerity measures have also led to budget surpluses. But such success needs to be sustainable, Holtzmann added.

“There is still a lot to be done in improving supply conditions, and thus reaching more growth, local and international investment, and employment in the country,” he said.

Milei currently enjoys solid support among the population, with surveys showing that more than half of Argentinians back his course.

Austerity affects ordinary people

Economist Hernan Letcher, director of the Argentine Center for Economic Policy, takes a more critical view. He believes the victims of Milei’s deregulation policy and austerity measures are ordinary people, not what Milei has described as the “caste.”

It’s a word Milei used during his election campaign to describe the network of governing politicians and their allies. “However, pensioners, public sector and construction workers are now affected,” Letcher said.

Immediately after taking office, Milei devalued the national currency, the peso, by more than 50% against the US dollar. Although this makes exports cheaper and more competitive, imports are now ever more expensive.

 A family picks through a trash bin in Buenos Aires
Around 27 million people in Argentina live below the poverty lineImage: Tobias Käufer/DW

Researchers at the Catholic University in Buenos Aires also see the devaluation of the peso as one of the main reasons for the further increase in the poverty rate, which rose from 45% to 57% after Milei took office, the highest level in 20 years. This means that around 27 million Argentinians now live below the poverty line.

Added to this is the 5.3% slump in economic output, as well as weak figures for industrial production and economic activity indicators.

New reform package

A breakthrough is expected to come from a reform package that aims to boost both foreign and domestic investment, which was passed through the Senate, the upper house of Argentinian Congress, a few days ago with the help of the opposition.

After months of negotiations, the Milei camp backed away from extreme demands, and the president now has significantly more room for maneuver.

While MPs debated the reform package on June 12, thousands demonstrated outside the parliament in Buenos Aires
While MPs debated the reform package on June 12, thousands of anti-government protesters gathered outside the congress in Buenos AiresImage: Natacha Pisarenko/AP/picture alliance

“The fact that this reform law was passed in the end, albeit after what were perhaps unnecessary delays, is among the successes of the first six months,” Buenos Aires-based economic consultant Carl Moses told DW.

The government has now learned how to deal with the opposition, which is willing to cooperate, he added.

“The severe recession, which was used to balance public finances and reduce inflation, naturally has a negative impact. However, there would have been a recession either way,” Moses said. “Now the worst seems to be over.”

This article was originally written in German.

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