Milei’s crisis

“If our government is re-elected in 2027, 2028 will be the best economic year in Argentina’s history,” said President Javier Milei yesterday during a conference with Wall Street investors in New York, where he was attending the UN General Assembly. The reality, however, is that 2026 is likely to be the worst economic year of his term in office. In Buenos Aires, just a few hours later, INDEC – Argentina’s national statistics institute – released poverty figures for the first half of the year. At the time of going to press, the figures had not yet been published, but poverty is expected to have risen. According to estimates by Martín Rozada, an economist at Torcuato Di Tella University, who produces an indicator capable of predicting Indec’s estimates with a certain degree of accuracy, in the first half of 2026, poverty stood at 31.4 per cent, up by around 3 percentage points compared with the end of 2025 (an increase of around 1.5 million people), though this remains the lowest level since the end of 2018.

Poverty reduction has been one of the key achievements claimed by Milei. Despite accusations of ‘social carnage’ due to the cut of around 30 per cent in public spending, during the libertarian president’s term in office poverty fell from 41.7 per cent in the second half of 2023 to 28.2 per cent two years later, with over 6 million people lifted out of poverty. This result was partly due to an increase in direct transfers to poor families with children, alongside the abolition of welfare schemes, but above all to the sharp reduction in inflation. Milei was, in fact, elected whilst brandishing a chainsaw, with a mandate to halt the spiralling rise in prices that was pushing Argentina’s economy to the brink of hyperinflation. After eliminating a deficit equivalent to 5 per cent of GDP by cutting public spending and halting the monetisation of the deficit, the government succeeded in reducing inflation from 220 per cent in 2023 to the current 30 per cent. Following an initial mini-recession, this simultaneous process of austerity and disinflation had an expansionary effect on the economy, which grew throughout 2024 and into 2025 (+4.5 per cent).

But at the end of last year, something went wrong. The mini financial crisis ahead of the mid-term elections – averted by the providential assistance of Scott Bessent from the US and Milei’s victory at the polls – nevertheless led to a rise in inflation, which peaked in March (3.4 per cent month-on-month). The Central Bank responded with a monetary tightening, which froze credit: one of the drivers of growth in the previous two years. This shock has slowed down activity in an economy undergoing profound transformation and characterised by great diversity. Milei’s model, based on trade liberalisation and deregulation, has in fact led to the boom in export-oriented sectors such as oil & gas, mining and agribusiness, whilst triggering a crisis in protected sectors such as manufacturing, those dependent on domestic demand – such as retail – or on public spending – such as construction. The problem, however, is that the sectors that are growing and generating foreign currency – such as oil and gas – do not create new jobs, at least not at the same rate at which traditional sectors are destroying them

Consequently, the labour market has deteriorated: whilst there has been an overall increase in employment, the number of people in formal employment has fallen sharply, whilst those in informal employment have risen. Employment has become more precarious and wages have lost ground. As a result, Argentinians’ priorities have also shifted. The main concerns have become employment and wages, whilst inflation – which was previously the top concern – has slipped to eighth place. Milei’s approval ratings have fallen to an all-time low, but the president still stands a good chance of being re-elected in 2027, not least because the Peronist camp is fragmented and has not exactly left a favourable impression on voters. According to many observers, most recently The Economist, the Argentine president should accept a slightly higher rate of inflation to boost growth in the year leading up to the elections. But Milei does not seem willing to compromise on the cornerstones of his economic policy: zero deficit and zero inflation. It was this rigidity that won him the 2023 election; it remains to be seen whether it will cause him to lose the 2027 election.