Milei Inherits an Economically Devastated Argentina

Argentina’s second round of presidential elections produced a surprising—and substantial—victory for the right-wing populist Javier Milei. But the libertarian economist, who has promised a radical shakeup of the Argentine economy, has a grim task ahead. Ordinary life is increasingly painful. With year-on-year inflation exceeding 124 percent this September and more than 40 percent of the population living in poverty, the economic and social challenges that the next president will have to face are stronger than ever.

Argentina’s second round of presidential elections produced a surprising—and substantial—victory for the right-wing populist Javier Milei. But the libertarian economist, who has promised a radical shakeup of the Argentine economy, has a grim task ahead. Ordinary life is increasingly painful. With year-on-year inflation exceeding 124 percent this September and more than 40 percent of the population living in poverty, the economic and social challenges that the next president will have to face are stronger than ever.

When President Alberto Fernández took office, Argentina was already in a long-term crisis, with inflation running at 55 percent year-on-year and a third of the population living in poverty. The current government sparked an even bigger crisis. A multitude of economic problems, from the need to refinance the public debt  to the high domestic deficit caused, in part, by the government’s large spending on energy subsidies and social assistance, have pushed Argentina into a situation that seems practically insurmountable.

“This is happening because of many years of mistakes,” said Marcelo Elizondo, the president of the Argentine chapter of the International Society for Performance Improvement, a leading nonprofit  dedicated to increasing productivity and performance in the workplace, and an academic expert on international economics. “For 20 years, we have seen a huge expansion of public spending, lots of subsidies to individuals, companies and social organizations, international isolationism and protectionism, and very little macroeconomic sustainability, and this is a model in Argentina that has not been corrected for a long time,” Elizondo added. These “mistakes” have produced a public debt that exceeds $400 billion and measures that have only worsened the impact of inflation, even as officials seek to control it.

Even something as simple as doing the daily shopping has become painfully uncertain. “At the supermarket they don’t show prices anymore because they are always changing, so you can’t even plan and manage your money when shopping,” said Leo Geluda, an independent businessman who imports products from abroad and whose livelihood has been severely limited. For people like Geluda, who depend entirely on access to foreign products, it is increasingly difficult to feed his family. But big companies are facing similar woes: More than 20 of the largest firms globally, including airlines, supermarket chains, and technology companies, have left the country, leaving thousands of people unemployed.

Although the unemployment rate in the country is 6.2 percent, almost half of the existing jobs are in the informal sector.  27.3 percent of the workers are paid off-book, without any kind of protection or possibility of future retirement, and another 22 percent are self-employed. Many lack qualifications and are forced into precarious work to earn a living, such as selling food on the streets or performing what are known as “changas,” informal tasks assigned on a daily basis without any possibility of continuity or regularization.

“Argentina has reached a short-termism that makes all companies too dependent on the current situation,” Elizondo said, adding that the lack of savings and the impossibility of attracting investments are another legacy of failed political measures. The high tax burden that the country places on companies that wish to invest, and the high participation of the state in the economy— with negative laws imposed on companies without any consultation —adds to the lack of consensus and leaves the country economically unstable.

“The Argentine of five years ago could say that he had an idea of the future and today, regardless of social class, that is no longer the case,” said Fernando Moiguer, an economist and founder of the strategic consulting firm Moiguer who led the study “Las 3 Argentinas,” which analyzes the impact of the crisis on different levels of Argentina’s society. “The upper class is seeing how it travels and especially how it emigrates to another country, the middle class how it manages its income to stretch it when it is not enough, and the lower class how it can do just to eat,” he added.

Argentina’s most vulnerable can’t access basic commodities, but the impact goes beyond that. The country’s child poverty rate is already 56 percent and growing. “Children are coming to school less because parents are less and less involved in their activities, as they have to work more,” said María Sofía Meijide, a professor in the Department of Political Science and International Relations at the Universidad Católica Argentina and operations manager of the Cre-Ser Foundation, which works to support children in poverty.

The socioeconomic plans proposed by the two final candidates were totally different. Milei proposed a reduction of the state, by eliminating most of the ministries and the country’s Central Bank, and progressive dollarization,  carried out together with an exponential cut in fiscal spending and a reduction in social plans. Sergio Masa, the current administration’s economic minister, advocated the state maintaining control of the economy in a more reduced form, generating a more competitive exchange and reaching a fiscal balance that has not been achieved to date. Milei’s radicalism proved more appealing than Masa’s answer of more of the same, but he won’t find it easy to implement.

“The incoming government is going to find itself with an economy in recession, decreasing 3 percent in gross domestic product this year, a very high inflation rate and a very bad expectations problem, so it will have to return to an exchange rate with market values, recover the balance of public accounts through a fiscal adjustment, and eliminate regulations that impede dynamism.” Elizondo said. That means a lot of short-term pain.

That pain is likely to produce social resistance, especially in a country with a strong history of unionization and social movements. “If these decisions have a full impact on people’s lives, this will increase social conflict, which will go from protest to organized social conflict,” said Facundo Cruz, a political scientist and academic coordinator of the Department of Government and International Relations of the Universidad Argentina de la Empresa.

Milei’s promised changes are likely to produce further pushback. “The government has two ways of handling social conflicts. Either it negotiates and offers goods and services or it represses them. When the social conflict starts, we cannot know where it will end,” Cruz said. Argentina’s economic—and social—future looks likely to be chaotic.