Buenos Aires, Argentina – Late last month, Argentine President Javier Miley uploaded a distinctively bizarre photo to social media. It showed him standing with his government behind a golden saw – a response to the election campaign which Miley used at rallies to punctuate his support for spending cuts. The accompanying caption read: “The best government in history.”

Such boasting may still be premature, but for now, Miley’s supporters say he has delivered on at least some of his promises – even if many Argentines have not. Suffering the consequences.

In the first year of his presidency, Miley’s commitment to aggressive fiscal adjustment began to transform a country that had been vulnerable to economic stagnation and runaway inflation, driven by years of rampant money printing that pushed up government deficits.

A self-described anarcho-capitalist, Miley revved up his chainsaw immediately after taking office, moving quickly to cut spending, abolish government ministries, and fire hundreds of bureaucrats.

In parallel, public pensions and salaries were suspended, reducing their real value, and public infrastructure projects were cancelled.

Cost-cutting led to a fiscal surplus in Milley’s first full month in office in January, and every month since, a run almost unprecedented in Argentina’s modern history. Overall, Miley reduced government spending by 30 percent compared to last year.

It was the president’s contempt for the administrative state Win Miley’s influential fans Outside of Argentina, especially among the rising circle of US President-elect Donald Trump. The winner of last month’s US election has repeatedly praised Miley, calling him his “favorite president.”

Elon Musk and Vivek Ramaswamy, the Trump aides charged with reducing the size of the US federal government, have both spoken well of Miley’s austerity measures, with Ramaswamy calling for “Miley-style cuts, on steroids.”

The best government in history
Long live damned freedom pic.twitter.com/HK4cGCk8dl

– Javier Miley (@JMiley) November 28, 2024

Domestically, Miley’s reforms produced the holy grail of Argentine politics: lower inflation.

When Miley was elected in 2023, Argentina had the highest annual inflation rate in the world: 211 percent. Prices were rising on a monthly basis by 13 percent, then rose to 25 percent in December 2023 – after Miley became president – following the massive devaluation of the currency by his government. But monthly inflation now stands at 2.4 percent, according to November data, the lowest in more than four years.

“Inflation was the big phenomenon that voters really cared about,” said Federico Robles, coordinator of the Wilson Center’s Latin America program in Washington, D.C. “This is a government that came and said it would solve the inflation problem, and there will be no other issue as important as this.”

Another positive sign: Argentina’s central bank has begun bringing in billions of dollars in new foreign currency reserves, thanks in part to a tight monetary regime and a tax amnesty plan that incentivized Argentines to return dollar savings into the banking system.

However, despite the recent influx, total reserves remain in the red.

The country’s renewed macroeconomic stability is changing Argentina’s outlook on markets. The country’s risk index, an influential measure of default risk by JPMorgan, has fallen from around 2,000 when Miley took office to nearly 750 at the beginning of the month, its lowest level in five years.

Impact on the poor

To be sure, the austerity policy that restored order to Argentina’s accounts came at a heavy social cost, leading to punitive stagnation, rising unemployment, and falling real wages in both the public and private sectors.

The brunt of the pain has fallen on the shoulders of the working class. The poverty rate rose to 53% in the first half of 2024, up from 40% in 2023 – the highest jump recorded in two decades. This proportion has since fallen slightly to 50 percent, although the number of people living in extreme poverty still exceeds 6 million.

According to UNICEF, nearly seven in 10 Argentine children are growing up poor, a slight increase compared to 2023. One million boys and girls go to bed every day on an empty stomach.

“There is nothing in the current deflationary dynamic that has a significant impact on the quality of life of families or the purchasing power of workers,” said Sergio Choza, the economist behind local consultancy Sarandi. A TikTok account that focuses on economics.

Demand has soared at food distribution centers and soup kitchens across the country. On the other hand, working-class enclaves in Argentina were hit harder by the elimination of energy and public transport subsidies, which inflated bills.

There are some signs that the most painful phase of the Miley adjustment may be over: consumer spending and manufacturing are showing gains. In September, wage growth exceeded the inflation rate for the sixth month in a row. Overall, it is estimated that this year’s recession will give way to a 5 percent economic expansion in 2025, according to the World Bank.

“This is Argentina. The country is still in a difficult situation. But you have to understand what the baseline is,” said Juan Ignacio Carranza, of Aurora Macro Strategies. The economic crisis that Miley inherited “was a bomb waiting to explode.”

“Economic activity and citizens’ purchasing power have not yet improved,” Carranza said. “The situation remains very fragile.” “But now at least we have a road [forward]”.

Managing expectations

At the time of his inauguration a year ago, Miley’s prospects for success seemed slim at best.

The challenges facing the country were urgent, and the shortcomings that the next president suffered from were many. A brash political outsider who gained national fame through bombastic television appearances, Miley had little track record of guiding policy proposals through the legislative process.

Some experts have raised fears of an era of dysfunction under Miley similar to the painful economic and political collapse Argentina experienced in the early 2000s, when the country changed between five presidents in the space of two weeks.

“Many analysts predicted a disastrous end for his government at the beginning of the year,” Robles said.

Miley has avoided this fate in part because his supporters have largely stood by his side during austerity policies. Notably, Miley’s approval ratings remained relatively stable throughout his first year in office – a feat that eluded his three predecessors in office, even though they initially registered higher levels of approval. According to pollsters, Miley ended his first year as president with an approval rating of 56 percent, compared to 52 percent the previous month.

Robles credits Miley’s efforts to managing expectations. In his first speech as president, and throughout his campaign, Miley did not downplay the short-term pain of his economic reforms, suggesting that the country’s situation would get worse before it got better.

“We are accustomed to hearing presidential candidates making optimistic promises of prosperity and talking about a future paradise,” Robles said. Instead, what Miley told voters was, “First, we have to go through hell.”

Miley has been able to push through his policies even though his party has only a small minority of federal lawmakers — and none across the country. Passing a landmark legislative package earlier this year aimed at boosting growth and raising revenues required political pragmatism, with Miley backing a watered-down version of the original bill to gain support from other parties.

“The way he manages the political situation is the most surprising thing to all of us,” Carranza said. “Being in a really weak position without any support in Congress…I think that was his main accomplishment.”

But Miley’s economic achievements in his first year do not necessarily indicate future growth.

“The bottom line in terms of productivity, consumer spending and investments all come from how the private sector reacts to the new political economy,” said Camilo Tiscornia, an economist and director of Argentine consultancy C&T Asesores Economicos. “In other words, the government cannot decide when the economy will grow.”

To help stimulate growth, the Miley administration began tearing down the regulatory maze that had made doing business in Argentina difficult for so long. But “the most important step of deregulation” is still pending, Tiscornia said, referring to the capital controls it inherited, a big red flag for investors concerned about the ability to get money out of Argentina if necessary.

The government also did not liberalize the exchange rate.

An excessively high peso value complicates efforts to attract capital and puts downward pressure on exports. It is the status quo that makes it difficult for the central bank to accumulate dollar reserves, a crucial resource for repaying external debt.

According to Choza, this is a recipe for “a very severe crisis.” In his view, the current strength of the peso is the product of technical machinations under Miley, including his expansion of capital controls, and does not reflect the true state of the Argentine economy. It will not be sustainable in the medium or long term.

A devaluation of the peso would help address some of these issues, but would likely trigger another bout of inflation, eroding the major achievement Miley achieved in his first year.

“All economic indicators have gotten worse, except inflation,” Choza said in a video summary of Milley’s first year. The question is: is it worth it to record a drop in it? [gross domestic product] GDP, industrial production, employment, purchasing power, real wages, international currency reserves just to limit inflation… I think it’s not worth it.

“I don’t think there is much to celebrate, although Javier Miley says, incredibly, that this is the best government in history. Let’s see what happens in Miley’s second year.”