The three-phase plan that reshaped Argentina

“Javier Milei’s dollarization and fiscal austerity proposals overlook the complexities of modern economies, ignore lessons from historical crises, and open the door for accentuating already severe inequalities.”

Ahead of Argentina’s 2023 presidential election, this was the warning issued by over 100 concerned economists, asserting that Milei’s policies posed an existential risk to the country’s future.

Chainsaws, piñatas and Austrian economics

At first glance, their concerns seemed reasonable. A flamboyant populist and TV personality, Javier Milei famously campaigned using his alter ego, ‘General AnCap’, an anarcho-capitalist superhero. He gained notoriety for theatrics such as smashing a piñata representing the central bank during a television appearance and wielding a chainsaw at rallies to symbolise his intent to slash public spending. His platform, firmly rooted in Austrian economics, called for full dollarisation of the Argentinian economy and the closure of its central bank as core objectives. Amid the country’s struggle with chronic hyperinflation, recurrent debt crises, and stagnant growth, critics warned Milei’s radical ideas would only accelerate the country’s economic downfall.

Even so, voters handed him a decisive victory, largely as a rejection of the status quo. In the November 2023 presidential runoff, he secured 55.7% of the vote against Sergio Massa's 44.3%, marking the largest margin of victory since Argentina's return to democracy in 1983. In contrast, Milei’s new party, La Libertad Avanza (LLA), largely failed to capitalise on his success. It currently holds 39 of 257 seats in the Chamber of Deputies and 8 of 72 in the Senate, barely crossing the electoral threshold.

This posed a serious problem: to successfully rewrite Argentina’s entire economic policy, the newly minted president needed sizable legislative backing. Instead, he got a minimal party presence, while the Kirchnerists and the Left, his main opposition, controlled close to half of both chambers. It seemed like a formidable obstacle, but, as it turns out, not an insurmountable one. By courting the country’s influential governors, relying on shaky legislative alliances and stretching the executive’s power to its limits (and arguably beyond), Milei successfully pushed through his complete revision of Argentina’s economy.

A man with a (three-step) plan

Milei’s three-part reform plan began with a so-called ‘shock therapy’. First, the official exchange rate was devalued from 400 to 800 pesos per dollar, aligning it more closely with market rates and reducing the black-market premium. Combined with tax reforms, this shift repositioned the country toward an export-oriented economy. Next, caps on prices, including those for public utilities and property rentals, were lifted. Milei also drastically reduced government spending. Thousands of public employees were dismissed as a hiring freeze spread across federal institutions. Welfare spending was slashed, subsidies were scrapped, and public works were abandoned. The government cut its ministries in half, from 18 to 9, loosened labour laws and stripped away hundreds of regulations. He also decreed that state-owned enterprises could be sold off in wide-ranging privatisation efforts.

While drastic, these measures led to Argentina’s first budget surplus in over a decade. The peso’s devaluation initially drove inflation to a record 25.5% in December 2023. However, by January 2025, monthly inflation had fallen to a three-year low of 2.2%. Poverty rates also took a hit at first, rising to a staggering 55% early in 2024, only to go down to 38% later in the year.

In June 2024, Argentina entered the second phase of President Javier Milei's economic reform agenda, focusing on monetary stabilisation and financial restructuring. A pivotal component of this phase was the legislative approval of a comprehensive reform package aimed to institutionalise earlier emergency measures and introduce new fiscal and monetary policies.

A significant monetary policy shift involved transferring the responsibility for interest payments on certain financial instruments from the Central Bank to the Treasury. Before Milei’s reforms, the Central Bank paid high interest rates to local banks to encourage them to keep their money parked there rather than lending it out. In theory, this should have reduced the money supply and curbed inflation. In practice, however, this solution proved particularly short-sighted. The Central Bank mainly financed these high interest payments through newly printed money, ironically worsening the inflation it aimed to control.

By transferring the interest payment burden to the Treasury, capable of financing it through taxation or borrowing, the Central Bank no longer needed to print money to meet these obligations. This decoupled monetary policy from inflationary financing pressures, allowing the Bank to raise interest rates above inflation without destabilising the economy.

After having restored investor confidence, Milei started to slowly reap the benefits of his reforms. In January 2025, Moody’s upgraded Argentina’s long-term foreign currency sovereign credit rating from ‘Ca’ to ‘Caa3’ and changed the country’s outlook from ‘stable’ to ‘positive’. Argentina also played a critical role in finalising a significant free trade agreement between the European Union and the Mercosur bloc (comprising Argentina, Brazil, Paraguay, and Uruguay)

A key step of Phase Three involves opening up Argentina’s currency market. Under the old approach of mixed exchange rates, some dollars had to be exchanged at official prices and others at market rates. This convoluted system has now been scrapped in favour of a single, unified rate, with the dollar freely trading within a flexible range between ARS 1,000 and ARS 1,400 per USD, determined by supply and demand. This band will widen by 1% each month to gradually open up the exchange market and avoid any major shocks to the system. At the same time, previous currency controls on individuals are being lifted. Companies will also be allowed to easily transfer profits abroad starting in 2025, and rules for paying for imports and exports are being relaxed.

To support this transition, Argentina is reinforcing its monetary policy. The central bank will stop printing pesos to fund government spending or pay interest on its debt. A historic USD 20 billion deal with the IMF has been signed, with USD 15 billion available next year to help the central bank buy back government-issued debt. An additional USD 6.1 billion will come from other international lenders, while a separate agreement with global banks could add up to USD 2 billion in short-term loans. These steps could boost the central bank’s liquid reserves by USD 23.1 billion in 2025. To round it out, Argentina also managed to extend its USD 5 billion currency swap with China for another year.

Growing pains

On paper, Milei’s reforms are beginning to show results. Still, high level data fails to show the full picture. The long-term economic gains from the drastic measures have come with a sharp decline in living standards. Healthcare costs have soared, pensions have been slashed, and many social programmes dismantled. Mass consumption in Argentina fell by 10.2% year-over-year in February 2025, marking the fifteenth consecutive month of decline. The sharpest drop was recorded in September 2024, with a peak contraction of 22.3%. Nowhere is the impact of these measures felt more than in Argentina’s appetite for meat. Once among the world’s top beef consumers, Argentina saw average beef intake fall from a long-term average of 73kg to just 48.5kg per person in 2024, painting a clear picture of how deeply these reforms are biting.

While Milei’s economic theories have held up so far, he has had to rely on a particularly heavy-handed approach to push them through. Early into his presidency, he introduced a controversial public order protocol that gave federal forces broad authority to break up protests opposing the new austerity measures. Due to his limited backing in government, Milei has also repeatedly had to stretch his executive powers to implement significant reforms without congressional approval. Although he insists his actions are within his presidential rights, critics warn they contribute to the erosion of Argentina's democratic institutions. Add to that Milei’s possible involvement in two crypto scandals ($Libra and CoinX) and accusations of selling candidacies within his own party, and it is easy to see why public support has been steadily declining.

The long-term impact of mid-term elections

The mid-term legislative elections on October 26 will be defining for the future of the president and his reform agenda. Notably, several provinces are holding their own local midterm elections ahead of the national elections. In one such early vote, held in the politically significant Buenos Aires City, Milei’s party, the LLA, secured over 30 percent of the vote, despite a record-low voter turnout. Such results bode well for the party’s prospects in the upcoming national elections. Even so, if LLA fails to secure enough seats in Congress and the Senate, opposition parties could use this lack of support to argue that Milei’s concentration of power is no longer justified, leading to a withdrawal or limitation of his special powers or even raising the possibility of impeachment. Congress might also restrict his ability to govern by decree, forcing Milei into negotiation mode, which undermines his preferred confrontational, unilateral style.

If both the LLA and Milei can maintain public trust, avoid scandals, and steer clear of authoritarian overreach, the future looks favourable for Argentina. The benefits of the economic reforms are set to coincide with the dramatic turnaround of the country’s energy sector. With the expansion of the Vaca Muerta oil and gas fields, Argentina has turned a USD 4.5 billion energy deficit in 2022 into a USD 5.6 billion surplus, projected to reach up to USD 20 billion by 2030. Oil production is rising, pipelines are expanding, and LNG infrastructure is in development, positioning Argentina as an important future exporter despite high transportation costs. In parallel, the mining sector is gaining momentum with new lithium and copper projects, potentially generating billions in export revenues over the next decade.

Clearly, Argentina’s trajectory is promising, but its foundations remain fragile. Whether Milei’s three-step gamble ultimately pays off will largely depend on economic outcomes, political resilience and public tolerance.