It is often said that good accounts make for good friends, but sometimes, bad accounts can also tighten bonds. Argentina, under Javier Milei, is currently experiencing intense financial turmoil and has just received highly opportunistic support from Donald Trump. On September 24, the United States announced that Washington was prepared to offer "unconditional support" to the Argentinian administration, providing $20 billion (about €17 billion) in aid to help overcome the financial markets' loss of confidence in the peso.

Less than two years after Milei's surprise election to lead Argentina, the country has once again found itself trapped in the vicious cycle of overindebtedness it thought it had broken. Enthusiasts of the "chainsaw" – the self-proclaimed symbol of the president's libertarian and conservative shock therapy to fix the economy – clearly celebrated too soon. After initial successes in reducing inflation and the budget deficit by slashing public spending by a quarter within a year, hopes for a V-shaped recovery – that is, a depression followed by strong growth – quickly fizzled out.

In the second quarter, gross domestic product declined compared to the first three months of the year, unemployment rose by two percentage points since Milei took office and 200,000 jobs were lost. The main indicators are all down: consumption, investment and exports. Within just a few months, the "chainsaw" policy has seriously stalled.

Inflation has been contained by keeping the peso artificially high, at a level out of step with Argentina's real economic potential. Promises of direct foreign investment, especially in the energy sector, have been slow to materialize, and investment funds that were initially drawn to Milei's early results left as quickly as they arrived. Without sufficient inflows of foreign capital, Argentina will not be able to meet its upcoming debt payments.

Start of panic

As Julien Marcilly, chief economist at Global Sovereign Advisory, explained, the unpredictable president likely overestimated his ability to make the population accept the consequences of his policies, which resulted in a 10% cut to the civil service, the elimination of many subsidies and a substantial reduction in welfare transfers. Retirees and teachers can no longer make ends meet, and the poverty rate remains at sky-high levels.

You have 56.3% of this article left to read. The rest is for subscribers only.