Transcription
Argentina's new president has saved his country from economic collapse after just one year of his presidency. Heading into 2025, there will probably be high economic growth exceeding 4%. Inflation is expected to drop by almost 100 percentage points, and there will be the first government fiscal surplus in decades. This is the first time in, well, almost a 100 years that Argentina returns to normal.
Argentina's economy has been a disaster, as it went from one of the world's wealthiest nations in the early 20th century to a mediocre one at best. A big reason for this was terrible government policy, which Milei is now trying to reverse by slowing down money printing, lowering taxes, and cutting regulations. Argentina's economy can now finally thrive; although this was painful to do at first, the rewards are already showing. In this video, we'll dive into what Milei did to make his country better and what the world can learn from this. Please hit the like button down below to support our work, and without further ado, let's get into the video.
The reason why Milei's policy stands out so much is because of what his predecessors did. You could argue that Milei's policies aren't that genius, just that Argentina's previous leaders did such a terrible job, and the new president only had to reverse their decisions. So let's first take a look at Argentina's history and try to understand what went wrong.
The country of Argentina is relatively young, as it got its independence from Spain in 1816 and its constitution in 1853. This constitution was closely inspired by the U.S., and Argentina became a representative democracy. Initially, Argentina was the place to be; its GDP per capita surpassed that of many European nations from the 1890s to the 1910s, and it even exceeded the U.S. in some years. This was mainly because of Argentina's beef and wheat exports, owing to the fertile Pampas region in the Northeast. The country was also a top foreign investment location, as people all over the world wanted to take part in Argentina's rapid economic growth. The nation attracted millions of immigrants from European countries like Spain and Italy, many of them choosing Argentina over the U.S. Argentina's population increased from half a million at the time of its foundation to about 5 million in 1900.
During these decades of rapid growth, the country expanded its geographical frontiers to the west and the south. But in the 20th century, this all went downhill. You see, there was a growing social tension between the rich landowners and the poor workers in the rapidly growing city of Buenos Aires. People didn't have enough jobs because Argentina didn't have a ton of industry. The last straw was the global depression after the Wall Street crash in 1929. Argentina's GDP fell by a fourth, and total exports dropped from 1.537 billion U.S. dollars to 561 million. It was the perfect moment for the growing populist movement to take over control.
But soon after, military strongmen took power with a coup in 1930. They wanted to prevent populist rule and protect the elites. It was the beginning of the infamous "Decade Infamous," and Argentina's economic growth came to a standstill. Government corruption and policies favoring the landowners put an end to the rapid growth of a few decades earlier.
After the "Decade Infamous," things didn't get a whole lot better. In 1943, yet another group of military leaders took control of the country. General Juan Perón was the most popular figure from the group, and he became president in 1946. The urban population liked him, but he implemented a terrible economic policy. He signed anti-trade laws at just about the worst time in history. Perón wanted to boost domestic industries, but as a result, Argentina missed out on the global trade boom after World War II. Argentina's industries also didn't keep up with the rest of the world because the country didn't need to innovate and compete internationally. On top of all this, the president used huge government spending to fund social welfare programs and to redistribute wealth. He also decided that the government would need to cap market prices. These policies made him very popular in the short term, but the downsides soon showed. From 1948 to 1950, the peso lost about 70% of its value, and inflation peaked at 50%. For the most part, this was caused by Perón's money printing, a strategy known as inflationary financing. So in 1955, Perón lost his power because of, well, you guessed it, a military coup. Perón's party was outlawed by the generals, and he was put in exile.
The following 10 years brought absolute chaos to the country, with different political groups all vying for power. Factions of the country's military also started to fight each other in 1962, leading to yet another coup. Four years later, General Juan Carlos Onganía took control with a coup d'état in 1966, called the "Argentine Revolution." He established an authoritarian regime that ruled over the country for 7 years. Needless to say, political instability made Argentina a terrible place to invest in or to have economic relations with. Because the authoritarian regime was unsuccessful, the population began to revolt against it. Left-wing radicals went as far as to establish urban guerrilla warfare groups. This forced the military government to lift the ban on Perón and hold elections once again in 1973.
Perón returned from his exile and began his third term as president, but the country was already too far gone to have any form of stability, even within Perón's supporter base. There were various factions that just fought each other. Perón tried to put the country back together, but he died in 1974. His wife, Isabel Perón, took over power, and that's when the economy really began to collapse. The global oil crisis of a year before was already a huge shock, and the government decided to fight this with money printing. This was a terrible decision, as it led to hyperinflation. At the start of 1976, the annual inflation rate reached a mind-boggling 600%. For the military leaders, this was once again reason for a military coup.
The following military government, called the National Reorganization Process, became one of the most infamous dictatorships in the country's history. State forces, alongside fascist militias, hunted down up to 30,000 leftists who opposed the regime, which was called the "Dirty War." This figure is disputed, however, and there were also many leftist terrorist groups attacking government forces. But because of the continual economic decline of Argentina, the regime was losing support. Foreign debt had grown to $45 billion, real wages lost 36% of their purchasing power, and unemployment was at the highest level since the Great Depression at 18%. After a failed war with Britain over the Falkland Islands, the military lost its political support and was forced to restore democracy in 1983.
The return to democracy seemed great on paper, but the following 40 years would bring absolute economic collapse. Now we can't really blame the first democratic president, Raúl Alfonsín. Many of the public enterprises left behind by the previous governments were running at huge deficits. He could either let them go bankrupt, which would cause massive unemployment and an economic collapse, or he could support them with government financing. He chose the latter, but there was a price to pay. Inflation got into the hundreds of percentages, meanwhile the currency exchange rates collapsed as Argentina couldn't compete internationally. President Alfonsín replaced the currency two times to devalue it but was unsuccessful. Annual interest charges were $5 billion, which President Alfonsín couldn't afford when he lost his financial lifeline from the IMF in 1988.
Things got even worse. The inflation rate reached 5,000% in 1989, and there was widespread food shortages. Soon, massive riots began as people looted the supermarkets for food. After this disaster, Carlos Menem was elected president in 1989. He privatized almost every public enterprise except for a few banks. Argentina was also finally reopened to international trade, but it was already too late. Prices from 1975 to 1991 had increased 20 billion times due to hyperinflation, and wages adjusted for purchasing power had fallen dramatically. In the 1990s, Argentina's industry was at the same level as in 1940. Many Argentinian businesses were unable to compete internationally, and the country had a trade deficit of $22 billion between 1992 and 1999. President Menem made the situation even worse when he pegged the peso to the dollar by law. The idea was that this would stabilize the peso and reduce inflation, but soon after it led to currency overvaluation. Basically, this meant that the peso was worth more than it would be in free market conditions. Exports fell, and businesses needed to lower their prices, resulting in falling wages, rising unemployment, and a recession. In order to rescue the economy, Menem started to increase Argentina's debts to provide relief, but the price of this would be paid by the next administration.
In 1999, Fernando de la Rúa was elected president. The dollar was on the rise at the time, making the peso even more overvalued and worsening the recession. However, the biggest problem for de la Rúa's administration was Argentina's huge foreign debt, which had exceeded 50% of GDP. That's not a problem for most countries, but the interest rate on new debt in Argentina went up 16% due to a lack of trust. This forced de la Rúa to turn to the IMF for cheaper loans, but he had to cut government expenses in order to get those loans. As a result, unemployment rose to 20%. Soon, the public lost their confidence in the government, leading them to withdraw huge amounts of U.S. dollars from their bank accounts. In November of 2001, this caused a full-on bank run. The banks were bound to run out of dollars to give to the public, so everyone wanted to be the first to convert their savings to prevent total bank collapse. President de la Rúa made a law saying that people could only withdraw 250 pesos a week, but the Argentinian population didn't like this. By the end of 2001, enormous riots broke out in Buenos Aires and other major cities. President de la Rúa declared a national state of siege, but the riots didn't stop until his resignation.
To make it even worse, Argentina defaulted on $132 billion of public debt. This was the world's largest ever government default and it marked the start of Argentina's Great Depression. It also led to political turmoil, as the country had five presidents in just two weeks. In 2002, the new president, Eduardo Duhalde, finally abandoned the peso-dollar convertibility. Long-term, this would make the economy much more stable, but the immediate effects were a lot less exciting. Argentinians effectively lost 65% of their savings value because of a huge drop in the peso. On top of that, the drop of the peso caused massive inflation as imports became more expensive. The accumulated inflation during Argentina's Great Depression was about 80%. Combined with a loss in savings, this resulted in a huge decline in living standards. By the end of the depression in 2002, unemployment stood at 21%, and 57.5% of the population lived below the poverty line. 300,000 people had left Argentina searching for a better future elsewhere.
Things began to improve when Néstor Kirchner took office in 2003. Under his government, Argentina's GDP grew 8% a year, and 11 million people were lifted out of poverty. This wasn't sustainable, though. It turns out that Kirchner made exactly the same mistakes as his predecessors. With his left-wing populist ideology, called "Kirchnerism," inspired by the previous Argentinian leader Perón, this president pushed for centralized control over the economy. He nationalized various companies, imposed price controls, and implemented large import and export taxes. This slowed down economic growth and innovation over time. Government money printing was also pushing inflation above the 20% mark. When Kirchner's wife, Cristina Fernández, took over the presidency in 2007, inflation got even more out of control due to money printing and government debt. The government lied about the official inflation numbers, which could have been as high as 39.9% in 2014. Later, the cost of bad government finances showed, and the country defaulted on its debts once again in 2014. Meanwhile, the government restricted access to U.S. dollars to the public.
In this deteriorating environment, the center-right politician Mauricio Macri took over the presidency from 2016 to 2019. He lifted the dollar exchange restrictions, leading to a peso devaluation of 30%. He didn't manage to stop money printing, as inflation exceeded 40% in 2016. When left-wing politician Alberto Fernández took over in 2019, things got even worse. Annual inflation exceeded 50% in 2019 and it surpassed 100% by 2023. The lockdowns during COVID had terrible effects on Argentina's economy, with GDP shrinking by 9.9% in 2020. Like many other countries, Argentina handed out stimulus checks, which led to inflation and rising government debts. This debt reached 12.8% of GDP by the end of 2020, and the government soon defaulted for the third time in 20 years. These problems with inflation and government debt spilled over to the general public, as a shocking 40.1% of Argentinians were living below the poverty line by 2023.
So with all of this historical context in mind, it's not hard to see why Argentinians would want a radical leader and a new path forward. The last 100 years have been incredibly depressing for the country. The country fell from 80% of America's GDP per capita in 1910 to just 30% now. Looking at the last century, one thing becomes clear: the country had terrible government policy. The military leaders had no regard for the economy, as they were too focused on their grip on power. More generals ruled over Argentina in the 20th century than civilians, and their unconstitutional takeovers led to huge political instability. This obviously made the country a bad place to invest in or to do business with because it lacked law and order. These politicians weren't any better, though. Many of the populist leaders, starting with Perón, wanted centralized economic planning and intervened in the markets. They subsidized things like food and energy, capped market prices, and ran costly social welfare programs. All of this was funded by printing government debt through the Central Bank. A shocking figure is that over the last 123 years, Argentina had a fiscal deficit for 113 of them, and every new leader promised to solve the economic problems caused by the last one, but they used short-term tools like money printing and government debt. This led to periods of hyperinflation and nine government defaults in total. As you can see on this GDP growth chart, it also caused huge booms and busts in Argentina's economy. Every two to four years or so, the country went from nearly double-digit growth to deep recessions. These extreme cycles killed Argentina's businesses and destroyed economic opportunities. Meanwhile, Argentina simply didn't keep up with the rest of the world in terms of innovation and productivity. Agricultural products such as soybeans, wheat, corn, and meat still make up the majority of the country's exports today. Only 30% of Argentina's GDP comes from international trade, compared to the global average of more than 50%. This proves that the country failed to move up the value chain. As a general rule, more government intervention means less economic growth, innovation, and productivity. Things like overregulation, excessive bureaucracy, and the government steering resources make the economy less efficient.
No one understands these problems better than Javier Milei. He has written about a dozen books on Argentina's failed economy. He did countless interviews and TV appearances, and eventually he signed up for the 2023 presidential race to solve exactly this issue. He had to compete against politicians from the left-wing establishment, but surprisingly he won. Before we dive into his presidential term, though, let's first try to understand where Milei comes from.
Milei was born in 1970 in Buenos Aires, at a time where Argentina was already deeply in decline. Milei himself had a difficult childhood, as he was bullied in school. His classmates named him the "madman," or "el loco," for his aggressive outbursts. That hasn't changed, as he's still known for being very passionate and sometimes very angry. Milei later claimed that his parents abused him during his childhood, which was a reason for him to later cut ties with them. For a while, he came from a middle-class family, as his father was a bus driver and his mother was a homemaker. Later they would get better jobs, though, which allowed them to send Milei to a private Catholic school. In a weird turn of events, he eventually became the lead singer of a local rock band called Everest. Perhaps this was an early sign of his rebelliousness and anti-establishment attitudes. But during this time in the 1980s, Milei's attention was increasingly drawn to the economic chaos in Argentina. He noticed the massive hyperinflation and the rapidly falling exchange rates of the peso. To understand why this was happening, he started a career in economics in 1989. It turned out that he was pretty good at it. Milei got an economics degree and two master's degrees and started teaching at various universities. His expertise was in the area of economic growth, something that was clearly lacking in Argentina. Later he would get roles at various banks and financial institutions as an expert and an advisor. But during this time he was continuing to self-educate, reading tons of books on economic theory, and eventually he stumbled upon the Austrian School of Economics. This shaped the rest of his life, as he based most of his political and economic thinking on this school of thought. It's a group of economists that was founded in the late 19th century, and they were, and still are, very contrarian. They advocated for minimal government interference, free markets, and the abolishment of the Central Bank. Milei was very impressed by this economic theory and said that "everything I've taught about market structure in the last 20 years in courses on microeconomics is wrong." This belief is also why Milei became an anarcho-capitalist, or a radical libertarian—basically someone who ideally wants to abolish the government and have a society based on freedoms and individual rights. He would not immediately turn to politics, though.
The real turning point in Milei's career was his growing presence on national television. He was one of the most vocal critics of the left wing for years, starting in the 2010s. In 2018, he was the most aired economist on Argentinian television, with a whopping 235 interviews. A reason for his popularity was the lack of his filter, as he often insulted his rivals or gave no nuance at all. He called the state a "cancer" and said "the state is the enemy." He also said inflation was "theft against the people," at a time where inflation was once again rampant on TV. He claimed that government bureaucrats were "rats and parasites," and he said that socialist politicians were "either ignorant or evil." Apart from clearly blaming the left for Argentina's problems, Milei also offered a solution, namely radical free market adoption. While he was constantly making appearances on television, Milei also wrote several books on the libertarian path and the end of inflation, where he put his views on politics and economics on paper. He wasn't very popular at first, though, and his movement was dismissed as fringe. But his popularity grew during the administration of Alberto Fernández. In 2019, there was a massive inflationary wave, and it got even worse after COVID, with prices increasing 250% in 2023. Amidst this turmoil, Milei finally made the move to enter politics. In 2021, he joined the legislative elections in Argentina, running in the Buenos Aires district with his party of La Libertad Avanza, or "Freedom Advances." He secured 17.7% of the vote. This gave him a seat in the Chamber of Deputies, comparable to the House of Representatives in the U.S. Most of Milei's backing was from young male voters in the lower or middle class. With this initial success, Milei signed up for the 2023 presidential election. His support was small at first, as an outsider with no established backing. But as the economy got worse, the traditional left-wing and center-right parties lost support, giving Milei a 20% voter share in the polls. During a tense runoff to the election, Milei managed to convince an additional 10% of the electorate at the expense of the center-right party.
In the first round of the 2023 election in October, Milei placed second only after the left-wing party of Sergio Massa. But the difference was too small, and people needed to go to the ballot box again to decide between Milei and Massa. Initially, it seemed like Massa was about to win, as he had a slight lead. But Milei did the impossible, and in November of 2023, he won by a solid 10 percentage point margin with 56% of the vote. He did this by appealing to the younger voters and criticizing the establishment in Argentina with their left-wing ideology. He also got endorsements from other political parties, which really helped a ton. But most importantly, Milei presented a plan to save Argentina from the crisis it was in. His policy suggestions boil down to two things: less government and more freedom. Even though he is not the first libertarian in Argentina's politics, he is the most radical one by far. He said things like "the state is the biggest enemy of society" and "the state is a criminal organization that lives off theft." In an ideal world, the government should be a so-called "night watchman state"; its only functions should be to protect the rights of individuals, defend the nation, fight crime, and maintain foreign relations. All other government functions, like education, healthcare, or social welfare, should be privatized or abolished, according to this ideology. This is a part of Milei's "chainsaw policy" of cutting all the branches of government that are absolutely not vital. Milei promoted this by bringing a chainsaw to his rallies, which looked pretty crazy. Most importantly, trimming the size of the government would allow Argentina to reduce government spending. Milei's predecessor spent about 40% of GDP a year through the government, and a lot of this went to social welfare programs and subsidies on things like energy. By cutting out those things, Milei wanted to eventually get this down to 25%. But this approach is a double-edged sword. On the one hand, it allows Argentina to lower taxes and cut out the root of inflation, which leads to economic growth and prosperity. Also, most people agree that the free market is more efficient than the government, and less government interference gives companies more room. But less government support could be bad for lower and middle-class people, as the government cuts out socialist programs and subsidies. It also hurts government workers who could get fired or lower salaries. All in all, lowering government spending is a part of Milei's so-called "shock therapy" plan. It's going to cause a disruption in the short term, but in Milei's thinking, it leads to more welfare in the long run. After all, if businesses thrive, there will be better-paying jobs and more prosperity in general.
Meanwhile, Milei also wants to abolish the Argentinian Central Bank, saying that "the central bank is a scam." To be fair, he's not the only one criticizing the Argentinian Central Bank, because it's closely tied to the government in Argentina. It has facilitated the money printing that caused hyperinflation and ruined the country. But most economists think it's better to have an independent Central Bank rather than no Central Bank at all. According to modern economic theory, central banks play a key role to stabilize the economy. This is done through a monopoly on money printing and interest rates. A simple way to think about this is that the Central Bank creates money out of thin air and decides what interest rates should be paid out on this money. When the economy is this bad, the Central Bank prints a lot of money at low interest rates, and when the economy runs well, the Central Bank does the opposite. But Milei rejects these ideas entirely, claiming that the central bank distorts the market, hurts economic growth, and actually causes booms and busts. He also believes that central banks incentivize high government spending because there's basically an infinite supply of money from the Central Bank through money printing. Central banks also indirectly tax the public as it creates inflation, which evaporates purchasing power.
Although abolishing the central bank is pretty radical, it's not even Milei's most radical idea. He also believes that the Argentinian economy needs to be dollarized. He wants to accept the dollar and other global currencies as legal tender. Now this is different from the plan to peg the peso to the dollar, something that had been tried before and failed miserably. According to most economists, Milei said that "we're going to let currencies start competing." He also added that "at some point there's going to be so many dollars in the economy that maybe one day we'll be able to close the central bank, and on that day, if I'm still in the government, I doubt not that I will close it." This is because the Central Bank only controls the peso and it has no power in a dollar-dominant economy. Argentina wouldn't be the first Latin American country to adopt the U.S. dollar, as Ecuador, El Salvador, and Panama have done the same. Generally, the U.S. dollar made those countries more stable. Some people are opposed to this idea, however, because it takes away the sovereignty that Argentina has over its economic policy. The U.S. dollar is made in the United States, and Argentina has no say over its supply. This means that the government or the Central Bank can't support the economy during a crisis. Although Milei doesn't believe this is necessary.
Even though the Argentinian president is an economist at heart, he also has pretty controversial views about politics. He is very critical of the left, which is why many people label him as a far-right politician. Milei thinks that "if you are on the left, you are a terrible person." He also thinks that socialism is a "murderous system that only creates misery." Saying this about communism is generally accepted, but saying this about socialism is pretty radical. Aligning with other right-wing movements, Milei also claimed that climate change is a "socialist lie" and that gender ideology is "cultural Marxism." These things have attracted a lot of criticism from the media and Milei's opponents, as he was called "el loco," or the madman. But Milei's hate for the government and the left-wing elite was incredibly popular in Argentina. After all, just imagine what it's like to live in a country that's been in decline for decades on end. Many lower and middle-class people in Argentina simply don't care what the media or left-wing politicians have to say; they simply want change.
So now, one year into the presidency, we can finally judge how Milei has been doing politically. There are obviously widely different opinions on his actions. The president in Argentina shares many similarities with the new U.S. president, Donald Trump. Milei recently withdrew from the World Health Organization, citing the terrible handling of the COVID pandemic as the reason. Allegedly, Milei is also making plans to leave the Paris Climate Accords. Meanwhile, the Argentinian president announced that he wants to build a fence at the border with Bolivia to combat drug trade and illegal immigration. That sounds very similar to Trump's proposals on the Mexican border. In the international theater, Milei strengthened Argentina's ties with the United States, Ukraine, and Israel, while cutting relations with socialist and communist countries like Cuba, Nicaragua, and Venezuela. He also proposed to cut ties with China, although he has yet to take action on this one. Initially, Milei abolished several government ministries, including the Ministry of Women, Gender, and Diversity. He banned gender treatments for trans children, saying it's child abuse. This is the part of Milei's "war on wokism," which he claims is a cancer that must be extirpated. The only area where Milei expanded the government was in law enforcement. He wants to give the military more room to intervene in internal security issues to combat things like drug trafficking. This is incredibly controversial given the history of the military in Argentina during the Dirty War. However, Milei is pushing for reconciliation with the military. During a national memorial day, he released a video detailing how leftist guerrillas terrorized the country in the early 1970s and how the number of assassinations by the military regime was way overstated. This flips the script entirely because the memorial day was usually used to glorify the leftist opposition and condemn the military.
Anyway, all of these policies combined are very controversial and divisive. The right-wing conservatives and libertarians love him, but left-wing progressives obviously hate what Milei is doing. There are numerous protests against Milei's policies, mainly in the Buenos Aires metropolis. But perhaps surprisingly, Milei's approval hasn't gone down, despite a dip in the first months. Milei now has a higher approval rating than when he took office, with polls from last November putting him at 54%. This approval rating is actually higher than the previous two presidents at the one-year mark of their presidential terms. The reason has to do with the economy. Defying most expectations, Argentina is making incredible progress on the economic front, despite cutting government spending. Fixing the economy was Milei's main selling point, and he delivered. Milei said that "we are already delivering a wonderful government; in fact, it's the best government in the history of Argentina." You can decide if you believe this or not, but the economic figures don't lie. Argentina escaped a one-year recession that it entered back in 2023, and the future is bright for Argentina, with the IMF predicting a 5% GDP growth in both 2025 and 2026. This economic recovery was way faster than expected, and most importantly, it happened despite Milei's budget cutting. In just one year, he trimmed government expenditure by an estimated 31%, something that has never been done before in Argentina's history. That's more than 10% of GDP. As a result, the country has recorded its first fiscal surplus in 14 years. The cost-cutting at the government was so effective that Argentina can now start to pay off its debts and become more financially responsible. It's a huge difference compared to the previous administration, who ran the government at a deficit of 4.4% of GDP in 2023. Economists
Are baffled, as many have said that the cost-cutting was way too radical. Even the economists at the IMF were surprised, saying that these were better than expected results. According to modern economic theory, the government needs to increase spending to get out of a recession. A rapid reduction in spending could actually hurt the economy and spark a further recession. But the shock therapy largely worked, as the private sector expanded so rapidly that it made up for the loss in government spending. The economy is already recovering, and M's approval rates are holding up.
In an interview with the Financial Times, M said that even he was surprised, not for his economic performance, but for his continued political support. He said that, "I have a 50% approval rating after carrying out the biggest austerity program in our history. It's a miracle, isn't it?" On top of that, the inflation rate has dropped tremendously. When M got into office, there was hyperinflation, with the annual inflation rate exceeding 200%. Inflation is still pretty high at 2.4% per month, but that's the lowest figure in four years. Ordinary Argentinians have definitely noticed this, and this long period of pain and suffering appears to be ending. And once again, economists are positively surprised, as cutting inflation while getting out of a recession is pretty remarkable.
Meanwhile, M is also delivering miracles for the stock market investors. In 2024, Argentina had one of the best-performing stock markets in the world in pesos. The Argentinian Merval index nearly tripled in one year. Now, you need to adjust that for inflation and currency depreciation, but it still beats other markets like the US by a huge margin.
However, the working people at the government agencies probably don't like what M has done. Cutting government spending means that government workers either lose their jobs or get their salaries cut. At the very beginning of his term, M removed 13 government agencies, and 30,000 federal employees lost their jobs, or about 10% of the federal workforce. M claimed he fired even more, saying that 50,000 were dismissed. The government also doesn't renew contract contracts anymore, meaning that many more stand to lose their jobs. The government employees that have stayed have their wages diluted due to inflation and a halt in salary increases.
Trimming the size of the government did have an effect on unemployment rates, as it went up one percentage point. M's idea is that these people eventually get rehired by the private sector, as lowering government spending and lowering taxes could refuel economic growth. Government employees are going to have a hard time in the short term, though.
Another group that's been hit hard in Argentina is poor people. This was the biggest point of criticism against M's government. He froze pensions, cut welfare programs including soup kitchens, and reduced subsidies for energy and transportation. This was a shock for low-income families in Argentina. The poverty rate was already terrible when he got into office, as it stood at 42%. During the first half of 2024, this increased to 53%, pushing 3.4 million people into poverty. Many experts and journalists called the Argentinian president out on this, claiming he's betraying the poor. For a while, there were also violent protests in Buenos Aires against the government's economic decisions, but that's calming down already because poverty rates are falling at an unprecedented pace.
In the second half of 2024, the poverty rate fell 37%, according to private estimates. That's lower than when M got into office, and it would mean more than 7 million got out of poverty in six months. Recently, the president said that the poverty rate fell by 20 percentage points since he took office, which would put the figure at closer to 9 million escaping poverty. There are a couple of reasons for this. Most, most importantly, the government is spending less, which means that inflation has slowed down and that purchasing power has stabilized. The private sector is also finally growing under M's administration, which allows people to work their way out of poverty.
In his New Year's address, the President also claimed that lower corruption and more government efficiency meant that the social support was delivered way more effectively. There was a lot of government waste under the previous administrations, and spending less doesn't always mean less support for poor people.
M's economic agenda wasn't just about cutting government spending, though. It also focused on increasing economic freed-fre by cutting government red tape, and M has been very successful in this area. In one speech, the president said that the administration had cut more than 900 regulations, or about three per day. One area where regulations have been cut is in the housing market, with very positive results. The government stopped getting involved in the rental market, and as a result, supply went up 170%, and prices adjusted for inflation went down 40%. This is just one example where less government intervention means more economic prosperity.
There are also risks to this, of course, as regulations have been created for a reason. They're designed to protect consumers or maintain the rule of law. But in many countries, there's no mechanism to actually remove ineffective or outdated regulations, which leads to a huge buildup of excessive bureaucracy. There are similar problems in the US, where the number of pages in the Federal Register is nearing 200,000. M has offered his support to Donald Trump and Elon Musk in the US, as they're looking to cut all this red tape with the Department of government efficiency. Donald Trump definitely respects the Argentinian president because he was one of the few foreign leaders invited to his inauguration.
Moving on to another aspect of economic freedom, namely taxation, M is making less progress. Although export taxes have been reduced, income taxes slightly increased. He wants to be fiscally responsible, and it's hard to cut taxes while moving out of a government deficit. But M has promised to start cutting taxes in 2025, which would help consumers and the private sector eventually. He wants to reform the tax system entirely to make it way less complex. He wants no more than six kinds of taxes, effectively removing 90% of the number of existing taxes. This would make it way easier to do business in Argentina and removes yet another layer of red tape.
Even though these ideas are pretty radical, M hasn't yet delivered on all of his promises. For example, he hasn't abolished the central bank or dollarized the economy. The reason is that it would destabilize the economy too much, to the point where M would lose support and probably be ousted. The cutting of government expenditure was already a big step that caused temporary pain and hardship. Still, some anarcho-capitalists were disappointed by M, as they wanted him to go all in.
Right when he took office, the president's response was that, "We are all liberal Libertarians, we are not liberal fools." But he hasn't abandoned his plans. A lot is still going to change over the next three years because only a quarter of the reforms are implemented, according to M. This could lead to even more economic success, but the president's radical plans could also come crashing down as they become more extreme. According to M himself, "The difference between a madman and a genius is success." This man could go down in the history books as a hero or as the man saving Argentina from its long demise.