Very few would have bet a year ago that the ‘radical’ measures of Javier Milei (referred to by many as the ‘madman’) were going to have a positive impact on Argentina’s finances and economy. However, after a year or so, the results seem hopeful at the very least and those who doubted or remained silent now do not stop praising and praising Milei’s first successes. A good example is that of Germany or the United Kingdom and its press, which in recent months have been full of praise towards Milei’s policies, even asking that some of the policies implemented in Argentina be copied (this has only happened in the case of Germany). One of the most popular statements was that of a German politician who has had great influence in the European country, but some relevant newspapers such as The Telegraph, The Economist or even the chief economist of Commerzbank, one of the most important banks in Germany. Although Argentina’s economy is light years away from that of Germany or the United Kingdom (in terms of development and GDP per capita), Milei’s policies seem to be becoming a kind of example for a part of European societies.
The editor-in-chief of The Telegraph published an article a few days ago in which he highlighted that “Milei’s ‘shock therapy’ had its skeptics, but even his staunchest critics were forced to change course. Inflation and public spending have fallen, the debt is falling and confidence in the economy is rising. The figures suggest that Milei’s project is succeeding, despite strong criticism from the country’s left, with former political leader Cristina Fernández de Kirchner accusing him of subjugating Argentines to a “useless sacrifice,” highlights the editor of the British newspaper.
The article of The Telegraph argues that good proof of this is the moderation of inflation: “Price increases have fallen from almost 300% year-on-year in April to around 119% at the end of 2024. Although the growth in prices is difficult for anyone to digest , inflation is finally heading in the right direction,” says this expert from the British newspaper.
It is true that in a very short time certain progress has been achieved in Argentina. Inflation has gone from 25% month-on-month to 2.4% in one year, the country risk has collapsed, poverty has begun to decrease intensely… However, the South American country continues to be a fragile economy that suffers from important ‘evils’ that have no short-term solution. Therefore, it is even more striking that German leaders, media and banks highlight and praise Argentina’s policies with a certain ‘envy’.
The former German Minister of Finance and leader of the Liberal Party (FDP), Christian Lindner, defended in December that Germany would benefit from a “little bit of Milei and Musk”, in reference to the policies of the president of Argentina, focused on reducing the weight of the State. in the economy and in public spending cuts. Lindner highlighted the achievements of both, despite being very controversial internationally, in an article published today in the economic newspaper Handelsblatt. “It is true: both Javier Milei and Elon Musk sometimes hold extreme, crazy and sometimes even alarming opinions, and they publicize them with provocative actions. However, I would dare to say that behind Milei and Musk’s provocations there is a disruptive energy of which Germany lacks,” Lindner wrote. Regarding Milei, the former minister assured that “the decades of mismanagement are reforming the economy and the State.”
The German press surrenders to Milei
The German newspaper Die Welt also noted a few weeks ago that “in fact, Milei’s reforms are showing the first signs of success: inflation is falling drastically, housing supply is increasing and there have recently been encouraging statistics on economic growth – although after a strong economic recession”.
However, the clearest praise came from the newspaper Handelsblatt. The economic newspaper noted in one of its latest publications that Milei’s management was “the success of the year”, later arguing that “Milei’s balance after one year is impressive: “It has reduced inflation, balanced the state budget and introduced extensive deregulation to increase the low productivity of the economy and public administration.”
Returning to the United Kingdom, an article published on December 30 on the London-based platform Tomorrow’s Affair stood out. The economist Daniel Lacalle, in an opinion article, assured that what is happening in Argentina is not a miracle, it is simply economic logic. “Javier Milei’s first year in office has been a huge successespecially if we put it in the context of the disaster that he inherited from socialist Peronism. When Milei took office, the Argentine economy was in a state of total collapse. In 2023, GDP saw a 2.5% drop compared to 2022, with monthly inflation peaking at 25.5%, threatening Venezuela-style hyperinflation. The country’s risk had escalated to more than 2,000 basis points, with more than 50% of the population at risk of poverty and 20% in a situation of extreme poverty,” says this expert. “But in one year, Milei has managed to give it the return to the situation.” This economist gives as an example the moderation of prices, the recovery of the economy and the notable decrease in the poverty rate that Argentina has enjoyed in the final part of the year.
Another notable support for Milei’s policies came from Commerzbak, as noted above. The German bank’s chief economist, Jörg Krämer, highlighted Milei’s early policies: “Milei rightly points out that the weakening of the market economy has impoverished the once prosperous Argentina and has benefited only a narrow layer of officials and supporters of the party at the expense of the general population,” Krämer said in a document published by the German bank at the end of 2024.
“As he announced during the election campaign, (the Argentine president) wants to balance the state budget first. To do this, he has halved the number of ministries and limited salary increases for civil servants. Since January, The Government registers a financial surplus. Inflation, which was over 200% when Milei took office, is falling. Thanks to deregulation, the first foreign companies want to invest in the energy and raw materials sectors. After the relaxation of rental laws, owners are once again offering their apartments on the market,” Krämer pointed out.
What has Milei achieved in Argentina?
A good example is the stabilization of the peso and the drop in the interest paid on the Argentine debt. This is well seen through the fall in country risk, an indicator that analyzes the confidence that investors have in the public debt of a nation and its economy (broadly speaking) has collapsed to reach lows that have not been seen since August. of 2018, falling to 610 basis points (compared to 2,700 at the end of 2023). This decrease in the risk premium brings Argentina ever closer to financial ‘salvation’, that is, to the possibility that the Government can refinance its debt in dollars and pesos at a sustainable interest rate and thus manage to scare once and for all the ghosts of the default (non-payment).
All this achievement that can be seen in the drastic drop in country risk (which has at times even reached 600 basis points) is the result of multiple factors, among which the fiscal adjustment that has squared the public accounts stands out (Argentina has primary surplus), the strong disinflation, the deregulation of the economy, the growth in employment in recent quarters, the recovery of the GDP (according to the latest data) and the strong popular support that Javier Milei maintains after having applied a program of historical austerity. Not only that, the Government and the central bank announced a few days ago the achievement of a loan of almost 1 billion dollars that will help restructure the country’s debt.
The best thing about all this selection of abstract indicators is that the population, the real economy, has already begun to perceive these improvements. The return of economic growth, increased investment and growth in real wages are reducing the poverty rate in Argentina at a rapid pace. This indicator started from very high levels caused, in part, by the same policies that are bearing fruit today: the drastic cuts in public spending, the restructuring of the central bank’s balance sheet, the deregulation of certain sectors and the liberalization of prices in the economy was not going to come free in the short term to the Argentine economy. The increase in unemployment, the containment of real wages and the poverty rate have been some of the costs of these policies with long-term objectives. However, the recovery of these indicators has begun to occur in the second part of the year and with it the decrease in poverty.
The key to this fall in poverty is found in the recovery of the economy, the growth of real wages (wages advance above inflation thanks to the moderation of the latter) and the decrease in unemployment that has come from the hand of the recovery of the economy. Argentina’s economy beat all growth expectations for the third quarter of the year. The GDP expanded by 3.9% compared to the previous quarter, which annualizing the figure would give a growth close to 17% (using this science fiction indicator that Americans like so much). The market consensus expected growth of 3% quarter-on-quarter and a drop of 2.6% year-on-year.
The engines that drive GDP
But what is more important, analyzing the latest GDP data, it is observed that there is a component that is skyrocketing, and that component is the one that holds the key to open the door to future growth of the economy and employment: private investment. Investment has skyrocketed thanks to deregulation and the generation of certainty in the economy through various laws approved by the Government. All in all, the unemployment rate has already fallen from 7.7% in the first quarter of the year to 6.9% in the third quarter of 2024, the latest official data.
An example that explains why investment has increased so intensely is in the sector known as ‘mines’ in Argentina, whose growth has been 7.3% quarterly, thus being the second that has grown the most after the agriculture (this year the harvest has been very good). The mining sector includes oil and with it the investment being made in Vaca Muerta, the oil field that already produces more than 430,000 barrels of unconventional crude oil and that promises to be the key to achieving constant current account surpluses in Argentina , which will lead to a greater inflow of dollars to ‘tie’ the peso exchange rate. But, in addition, the investment in Vaca Muerta is accounted for in the GDP in the gross fixed capital formation (GFCF), increasing current production and generating better expectations for the future.
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