Argentina’s new President Milei has achieved a key milestone four months into his term – stabilizing the currency and witnessing the country’s first fiscal surplus in 16 years during the first quarter.
The Argentine peso is no longer in free fall day by day. Instead, it is experiencing a significant rebound. Over the past three months, the black market exchange rate of the peso against the US dollar has surged by about 25%. This increase surpasses any of the 148 currency exchange rates against the US dollar tracked by Western financial media.
The black market exchange rate in Argentina, also known as parallel exchange rate, Dollar Blue, or Blue-Chip Swap (BCS), is used by many investors as Argentinians cannot access US dollars in the official market and can only purchase in the informal market. This parallel exchange rate, based on market demand, is popular among investors.
In the past decade, the Argentine peso has been plummeting at an alarming rate. In 2012, one US dollar could exchange for 4.2 pesos, and last May, the Central Bank of Argentina issued a new banknote with a face value of 2000 pesos, which was then only worth 4 US dollars.
President Milei took office two weeks ago with the parallel exchange rate peaking at 1250 pesos. However, following a series of bold reforms by Milei, the rate dropped below 1000 pesos in early March and again in the first half of April, with a slight rebound currently.
Thanks to the peso’s strong performance, the Central Bank of Argentina can enter the market daily to purchase US dollars and replenish some hard currency reserves. Local media reported in early April that since Milei took office, Argentina’s monetary authorities have bought $12.1 billion, bringing international reserves to $28.3 billion.
Argentinians have gained more confidence in the peso, curbing the demand for US dollars. The Central Bank of Argentina lowered the annual benchmark interest rate from 70% to 60% on April 25. This marks the fourth rate cut since Milei took office.
Milei has another achievement to boast about. In a televised speech on April 22, he announced a fiscal surplus of over 275 billion pesos for the first quarter of this year (equivalent to $3.09 billion at the official exchange rate). This surplus, representing 0.2% of the Gross Domestic Product (GDP), is the first quarterly fiscal surplus for Argentina since 2008.
The liberal president stated, “If a country’s expenses do not exceed its income and does not print money, there will be no inflation. This is not magic.” He promised Argentinians that the sacrifices made in recent months will be rewarded with lower tax burdens in the future.
Milei was sworn in as president on December 10 last year and immediately announced painful fiscal austerity measures. He reduced eighteen government departments by half, devalued the official exchange rate by over 50%, eliminated hundreds of price control measures, slashed subsidies to the energy and transportation sectors, and halted public infrastructure construction. Under this ‘shock therapy’, Argentina’s monthly inflation rate has been decreasing from a 30-year high in December.
While Milei’s achievements are commendable, the sustainability of such shock therapy, whether Argentinians can endure the pains of adjustment, remains to be seen. While spending cuts help eliminate severe fiscal deficits, the losses incurred are felt by many people.
On April 23, hundreds of thousands of Argentinians took to the streets of Buenos Aires in a massive protest against government austerity measures, particularly the budget cuts to public universities. This marked the largest protest against government austerity measures thus far. Argentina’s public universities rely heavily on government funding and provide free undergraduate education.
Previously, Milei’s massive cost-cutting measures on dozens of state-owned enterprises sparked fierce conflicts between the government, employees of these companies, and powerful unions. The bill to privatize state enterprises pushed by Milei faced opposition in parliament.
On April 17, Milei was named one of the 100 most influential leaders of 2024 by TIME magazine. The magazine noted that it is still too early to assess the success of President Milei’s measures, but one thing is clear: with Milei’s leadership, there is no turning back for Argentina.
Argentina’s economic history has been one of the most studied in the world. Nobel laureate in economics for 1971, Simon Kuznets, once categorized the world’s nations into four types from an economic perspective: developed countries, developing countries, Japan, and Argentina. The first two types have become common knowledge, while Japan and Argentina see two distinctly opposite examples.
Japan, lacking resources and energy, embraced democracy advocated by the United States after World War II, rapidly rose from the rubble, ranked among the top developed countries, and became an economic miracle. Conversely, Argentina, blessed with abundant resources, demonstrated a different kind of ‘miracle’ – plummeting from one of the world’s top ten economies into poverty.
Argentina boasts vast fertile land and significant advantages in agriculture. In the early decades of the last century, Argentina’s population, total income, and per capita income exceeded those of Canada and Australia. In 1913, Argentina was one of the richest countries in the world in per capita income.
In 1946, Juan Peron ascended to the presidency of Argentina. He implemented a state-led planned economy, later known as “Peronism”. Peron labeled foreign capital participation in agricultural exports as “inhumane economy seeking private profit” and sought to depart from such economy. The government led the way in “distributing wealth evenly among Argentinian people” and gradually nationalized economic infrastructure and key industries owned by foreign entities.
Due to economic policies that ignored operational efficiency, Argentina’s economic growth quickly stagnated, government fiscal deficits widened, foreign exchange reserves depleted, and the Argentine peso free-fell. Peron was ousted in a military coup in 1955 and went into exile in Spain.
For decades thereafter, Argentina oscillated between “Peronism” and “anti-Peronism”. As of last year, over 40% of Argentinians lived in poverty, and annual inflation exceeded 200%.
The newly elected President Milei, born into a modest family with little political experience, has been dubbed “Argentina’s Trump”. He advocates economic liberalism and a small government system. While some view him as extreme right-wing, Milei sees himself as a libertarian and anarchist capitalist.
Anarchist capitalism, advocating the elimination of the government as an economic agent, complete taxation suppression, promoting free markets, private property, and opposing fraudulent behavior, is an ideology Milei adheres to.
Milei bluntly pointed out that collectivism and socialism are the root causes of poverty. On January 17, at the Davos Forum in Switzerland, he delivered an emotionally charged speech. He stated that collectivism experiments are never the solution to global problems, rather, they are the root cause. Argentinians are most qualified to prove this as they have witnessed their own country sink into systemic poverty due to embracing collectivism over the past century. Milei unequivocally stated that communism, socialism, fascism, and others are all variations of collectivism.
Milei further emphasized that free trade capitalism, as an economic system, is not the root of problems but the only tool to end global hunger, poverty, extreme poverty, and misery.