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Only weeks into his term, Argentina’s new president, Javier Milei, seems to be making good on his promise to put a chainsaw to the country’s crisis-ridden economy. In his inaugural address, Milei told the nation: “There is no alternative to shock.” He dissolved half of the country’s ministries days later, and implemented a 50% devaluation of the peso.
But amid massive spending cuts, prices continue to spiral. Argentina’s annual rate of inflation has reached a three-decade high of 254.2%. Milei blames the poor economy on years of mismanagement, and has warned his compatriots to expect more pain before any gains will be felt.
While many support his measures, there are clear signs of disconnect. His government suffered the earliest general strike in history, conceding the streets to masses of protestors. More alarming for Milei, his all-reaching “omnibus law”, which ranged from economic policy to the privatisation of state entities, failed to get sanctioned by a divided National Congress in which he lacks a majority.
However, this resistance seems only to be emboldening the president. His plan to dollarize the currency, which some dismissed as mere electoral strategy, now seems likely to come sooner than expected. Milei has also launched a “cultural war” against his critics including Lali Espósito, a well-known Argentine pop star. But unless the economy picks up soon, he may be fighting a growing mass of unhappy citizens.
Echoes of the past
Shock therapy – involving the sudden removal of trade barriers and labour protection, and the implementation of drastic fiscal policies – is not new in Argentina. It was integral to the last dictatorship’s economic plan (1976-1983), who had learned from the pioneer in shock therapy: Chilean dictator Augusto Pinochet. In both cases, an eventual debt crisis followed.
In the 1990s, the then-Argentinian president, Carlos Menem, announced “major surgery without anaesthesia” on the economy. Failing to curb escalating inflation, it took currency “convertibility” – pegging the peso to the dollar – to break that cycle. But this generated new public debt, chronic stagnation, high levels of unemployment, and provoked the largest sovereign default in history.
Shock therapy is not only a Latin American phenomenon. The collapse of the Soviet Union led to a rapid transition from state-based to free market economies for a large part of the world’s population.
In Poland, the Balcerowicz Plan provoked an initial hike in inflation before eventually stabilising the economy based on free market capitalism – although new inequalities and social problems were on the way.
Milei’s challenge
Two features distinguish Milei’s shock therapy. First, he has a comparatively weak political position – particularly in Congress. Second, it is unclear how much of Argentina’s population is prepared to support his measures, as memory of the crisis looms close in the public imagination.
Milei has already introduced massive spending cuts, including a reduction of salaries and pensions via both inflation and suspending funding to subnational governments to pay salaries and subsidies. He has also launched an ambitious project to reset the Argentine economy, which includes the privatisation of all public companies, liberalisation of trade, and deregulation of labour.
Social opposition was immediate. Despite the government discouraging mobilisation by banning road blocks and large public gatherings, spontaneous protests took place in cities across the country. Labour organisations and trade unions have provided the largest resistance, through declarations, protests and legal claims.
Then, on January 24, when Milei was barely a month into office, a general strike was called. The strike, which included even Argentina’s more conservative unions, brought the country to a standstill.
Meanwhile, Milei has faced resistance in Congress. His omnibus law was expected to collect support from centre-right parties and subnational governors in need of national funding. However, Milei’s dogmatism prevented the government from accepting the changes requested by its potential allies, and the bill collapsed.
Since taking office, Milei has had a fragile relationship with governors and deputies, calling lawmakers a “delinquent cast set out to get bribes and perpetuate the decadent status quo”.
Instead of taking advantage of his strong electoral victory and fragmented opposition parties, he has provoked confrontation and ever-unified resistance. Public opinion also seems to be turning, as the proportion of people living in poverty has shot up from 45% to almost 60%.
With a sluggish economy, it is difficult to imagine how the president will find the necessary support for his shock therapy.
Dollarization: Milei’s big gamble
The most ambitious, yet unpredictable, element is Milei’s well-publicised plan to dollarize the currency. He claims this will generate hope and reboot a competitive economy, with the middle class able to travel and buy imported goods at ease.
But, based on current exchange rates, the average wage is set to be just US$218 (£171) per month, and this is likely to fall further following expected devaluations in the coming months.
If the plan fails, Milei can expect resistance to be mighty. Argentina has a deep history of popular uprisings. In 2001, five presidents resigned in the space of two weeks, with one of them escaping the Pink House (the president’s official workplace) in a helicopter.
Since then, despite regular protest and crisis, all governments have finished their terms and pursued their economic policies. Will Milei break the mould and be thrown out of office early? Or will he be able to show Argentinians a real economic turnaround before patience runs out?
The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
