It’s far too soon to claim that Javier Milei’s reforms have definitively turned Argentina around, but there are some encouraging signs.
It is obviously far too soon to claim that Javier Milei’s reforms have definitively turned Argentina around. Decades of economic mismanagement are not undone that quickly. Nevertheless, the release of numbers showing quarter-on-quarter GDP growth of 3.9 percent (against forecasts of 3.4 percent) was very encouraging. Expectations seem to be that the economy will grow by 5 percent in 2025, after falling around 3 percent in 2024. Inflation continues to ease, with November’s monthly number falling to 2.4 percent, as against a monthly 25.5 percent in December 2023. That December number was increased by an (overdue) 50 percent devaluation of the peso within a couple of days of Milei taking office, but it was very clear that the previous government had left the country within a month or so of hyperinflation (normally defined as 50 percent a month). The peso printing presses were running at an incredible pace.
While campaigning for the presidency, Milei warned that fixing this mess was going to mean a very painful adjustment, as a swollen, unaffordable state was cut back. That was understood by many of those who voted for him. And indeed 2024 has been very hard. The poverty rate, already high (something that has a way, sometimes, of being forgotten) at 41.7 percent and rising, jumped to 53 percent in the first half of the year, something that has been extensively reported. Not enough of the coverage included discussion of what the rate would have risen to had hyperinflation hit.
Equally, less attention was paid to the fact that the rate was beginning to come down. In the most recent Capital Letter, I wrote that the rate had declined to 47 percent and was falling. Forty-seven percent was still horribly high, but the direction of travel gave some sign of hope. The authors of a recent critical article on Milei in the Guardian did note the change of direction, quoting Eduardo Donza, a researcher at the Argentine Catholic University’s Social Debt Observatory, who noted that the rate had fallen to 49.9 percent “in the last quarter”: according, it seems, to its estimates. Donza warned that the decline would be slow: “It will take a long time for the worst affected to recover.” That, sadly, was an understandable forecast. The poverty rate has not fallen below 25 percent for 40 years. To understand why so many of the poor voted for Milei, perhaps start there.
However since then new data have been released by the government showing that poverty had fallen to 38.9 percent in the third quarter, from 51 percent in the second quarter, which was itself a decline from 54.8 percent in the first, an accelerating trend, and one that now has led to a poverty rate below that seen in the last months of the previous leftist government. Within those numbers, extreme poverty (indigencia) had fallen from 20.2 percent in the first quarter to 8.6 percent now. Once again, the trend shows an acceleration in the improvement in numbers (which are, to repeat myself, still too high).
The authors of the World Bank report (dated October 2024) in which the figure of a 40-year floor of 25 percent for the poverty rate is given, wrote this:
Argentina faces a paradox: it has good programs and allocates significant resources to fighting poverty, yet it has not fallen below a floor of 25 percent over the last 40 years. The report Poverty illustrates this situation by saying that Argentina builds solid walls on quicksand. In other words, an economy that does not grow and does not generate quality employment limits the opportunities to escape poverty for the population that increasingly requires social assistance. As a result, poverty and income inequality worsened between 2013 and 2023.
That “quicksand” is what Milei is trying to end.