Argentina’s finances showed a 0.3% surplus of GDP after debt payments, while the primary fiscal balance reached 1.8% of GDP. This turnaround comes after years of mounting deficits that pushed the South American economy to the brink.
Spending Cuts Drive Economic Change
President Javier Milei cut state spending by 30% within months of taking office. The cuts removed 10 government ministries and ended thousands of public jobs. Milei also halved the peso’s value and set up a monthly 2% decline rate to bring the currency closer to market rates.
These changes brought swift results. Monthly inflation fell to 2.7% by October 2024, down from 25.5% in December 2023. Yet the reforms also pushed more Argentines into hardship, with poverty rising to 53%. The economy shrank by 3.5% as households felt the pinch of reduced government spending.
Despite these costs, wages have started to catch up. Monthly wage growth now runs at 6%, outpacing inflation by 2-3%. This wage growth marks the fastest real gains in years, helping offset some of the reform’s initial pain.
Trade Numbers show Early Success
Argentina’s exports grew to $45.4 billion in early 2024, while imports dropped to $33.1 billion. This created a $12.3 billion trade surplus, ending years of deficits. The surplus comes from both higher commodity sales and lower imports due to peso devaluation.
The country has also achieved energy self-sufficiency for the first time since 2011. This shift comes as Argentina develops its Vaca Muerta shale deposits, among the world’s largest. Better pipeline networks could boost energy exports further in coming years.
Global Backing Boosts Reform Plans
Tech leader Elon Musk praised Milei’s changes on X, calling them “a model for the world.” The two have talked about bringing new business to Argentina. Musk’s support adds weight to Milei’s market-friendly agenda.
The International Monetary Fund projects 5% growth ahead for 2025. Argentine bonds have doubled since Milei took office, though they still trade seven levels below investment grade. This market response shows growing confidence in Argentina’s economic path.
Public Backs Hard Choices
Milei holds a +37 approval rating, the second-highest globally after India’s Narendra Modi. This backing helps him push through tough reforms. Unlike many leaders who shy away from painful changes, Milei campaigned openly on his plans for economic shock therapy.
The public’s acceptance stems from years of economic turmoil. Before Milei took office, Argentina battled inflation rates above 200% and repeated currency crises. This history made voters more willing to accept short-term pain for the promise of lasting stability.
Growth Plans Face Tests
Workers plan strikes, and courts block some changes. Still, Argentina expects $15 billion in new money next year. The country’s rich lithium and copper deposits could boost exports as global demand for these metals grows.
Argentina’s reforms have caught the eye of other nations looking to trim state spending. Yet copying its success might prove hard. The country’s unique circumstances – including widespread public backing for harsh measures – set it apart from most economies.
Economy Minister Luis Caputo states: “There is no more deficit in Argentina.” After decades of fiscal problems, these words mark a new chapter in Argentina’s economic story. Whether this success lasts now depends on Milei’s ability to maintain both public support and reform momentum against mounting pressures.
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