Economist says austerity means ‘more Argentinians below the poverty line’

Argentinian President Javier Milei, self-styled libertarian economist and leader of Partido Libertario, has proposed sweeping reforms to combat the country’s worst economic crisis in more than three decades. Argentina owes the International Monetary Fund (IMF) more than $31.1billion,1 inflation is set to rise from 210%2, and more than 4 in 10 people live in poverty.3

“Money and power go together,” says local tour guide Rocío. Standing in the centre of the Plaza de Mayo in Buenos Aires, she points me towards the presidential palace and the imposing, neoclassical façade of the Argentinian national bank directly adjacent to it. It was here that Milei proclaimed there would be “no half-measures” on economic policy in his inauguration speech in December.

“Most voters took a chance on Milei, not because they love him, but because he represents change,” she says. The President’s new reforms focus on economic deregulation, public spending cuts, tax increases, and privatisation. But in January, they faced early opposition from Argentina’s largest labour union, The General Confederation of Labour (CGT), on the grounds that they undermined workers’ rights.

Milei expected opposition, having introduced a $20billion reduction in public spending with the aim of stimulating growth. “He seeks to reduce the fiscal deficit by cutting public expenditure, leaving room for the private sector to grow,”said Darío Rossignolo, UN public policy adviser and professor of economics at the University of Buenos Aires.

Milei aims to reduce the need to print money to finance fiscal deficit, thereby reducing inflation. But Mr Rossignolo remains doubtful about the country’s growth prospects: “High inflation led to a reduction of GDP growth in Argentina, which has not increased in more than ten years.”

The reforms are made more difficult by the government’s lack of influence in Argentina’s bicameral National Congress. Milei’s party has 38 out of 257 seats in the Chamber of Deputies and 8 out of 72 seats in the Senate.4 This means he is forced into negotiating with other ideologically divergent political parties.

The former left-leaning Peronist government, now in opposition, lack alternative proposals to Milei’s reforms. “Unlike him, they [the Peronists] had nothing to seduce their voters. They thought Milei was the man with the plan, so they voted for him”.

Mr Rossignolo makes clear that these economic policies need time to take effect, and he does not know if they will improve the situation. As prices continue to rise, he warns that “more and more people will fall below the poverty line.”

With inflation rates soaring, public spending cuts blocked by the labour unions, and popular opinion increasingly divided, Rocío tells me, “we are all holding our breath”.

1 Total IMF Credit Outstanding, December 2023 – https://www.imf.org/external/np/fin/tad/balmov2.aspx?type=TOTAL

2 J.P Morgan report, January 2024 – https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the- market/outlook-2024-amv.pdf

3 INDEC, September 2023

4 European Parliament Report, November 2023 – https://www.europarl.europa.eu/RegData/etudes/ATAG/2023/754610/ EPRS_ATA(2023)754610_EN.pdf