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 pushed through a complete revision of Argentina’s economy.

A man with a (three-step) plan

Phase 1: shock therapy & fiscal austerity (December 2023)

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 monthly 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%. By July 2025, monthly inflation printed 1.9%, and year-on-year inflation slowed to around 36–37%.While poverty rates also took a hit at first, rising to a staggering 55% early in 2024, they declined later in the year. Best-available estimates now put urban poverty at roughly 31.6% in the first half of 2025, the lowest since 2018.

Phase 2: monetary stabilisation & financial reforms (June 2024)

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.

Phase 3: currency liberalisation & global integration (April 2025)

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). On Sept 3, 2025, the European Commission went ahead and formally forwarded the EU–Mercosur agreement for signature and ratification, which marks a real step toward market access benefits that Phase 3 banks on.

A key step of Phase Three involves opening up Argentina’s currency market: previous currency controls on individuals are being lifted. Companies will also be allowed to easily transfer profits abroad, and rules for paying for imports and exports are being relaxed. Milei also changed the old approach of mixed exchange rates, where 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.

By late August 2025, however, it became clear that the transition still required careful management. Authorities intervened by using Treasury dollars to stabilise the peso inside the band. This explicit (but temporary) measure has shed light on how the new regime was still bedding in. The IMF, meanwhile, seemed less concerned, reporting that “most FX restrictions” had been eased. It noted that the peso was generally trading near the midpoint of the band, suggesting a relatively smooth adjustment so far.

An additional step of Phase Three involves reinforcing the country’s 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.

As of August 2025, IMF disbursements under the new four-year Extended Fund Facility already stand near USD 14 billion. In a sign of political pragmatism, the Fund has relaxed near-term reserve targets and postponed its next review until after Argentina’s October midterms, giving Milei some breathing space to consolidate reforms.

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. Recently, there have been signs of partial normalisation in household staples with beef consumption back to roughly 50 kg per person on stronger real wages. Still, these numbers remain well below historical norms.

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. The political temperature rose further in late August and early September 2025: leaked audios triggered a major bribery scandal centred on disability-related contracts and Milei’s inner circle. Markets swooned, and Congress overturned his first veto while moving to limit decree powers. Separately, legal probes into the earlier $LIBRA cryptocurrency affair remain active as of August 2025.

Argentina’s midterm elections

The mid-term legislative elections on October 26 will be defining for the future of the controversial president and his ambitious reform agenda. Notably, several provinces are holding their own local midterm elections ahead of the national elections. In one such early vote, the Buenos Aires Province contest on September 7, LLA suffered a clear setback, with the Peronist opposition leading 47.07 % to 33.82%. If the LLA fails to secure enough seats in Congress and the Senate, opposition parties could consolidate control and 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.

Clearly, Argentina’s trajectory is promising, but its foundations remain fragile. Whether Milei’s three-step gamble pays off will depend on economic outcomes, political resilience and public tolerance. The scandals surrounding his government, from bribery allegations to questionable crypto dealings and accusations of cronyism, have begun to erode the larger-than-life image that propelled him to power. His charisma, theatrics and outsider appeal once gave Argentines hope for a clean break with the past, but his controversial, scandal-ridden and heavy-handed style of governing may push voters and institutions to end his experiment before it delivers results. Discontented citizens, already strained by austerity, could move to oust Milei before the reforms have time to translate into tangible benefits. The fate of Argentina’s recovery now hangs in the balance.

Summary Q&A

1. What is Javier Milei’s three-phase economic plan for Argentina?
Milei launched a three-phase strategy: Phase 1 (December 2023) “shock therapy” with spending cuts and subsidy removals; Phase 2 (June 2024) monetary stabilisation and financial reforms; and Phase 3 (April 2025) currency liberalisation and global integration.

2. What results did Phase 1 of Milei’s reforms produce?
Phase 1 brought Argentina’s first budget surplus in over a decade, but also record monthly inflation of 25.5% in December 2023 and a poverty spike to 55% in early 2024. By mid-2025, monthly inflation slowed to 1.9% and poverty fell to about 31.6%.

3. How did Phase 2 change Argentina’s monetary system?
The June 2024 reforms shifted interest payment obligations from the Central Bank to the Treasury, stopping money printing to pay banks. This allowed higher interest rates without fueling inflation, helping to stabilise the peso and restore monetary credibility.

4. What does Phase 3 involve?
Launched in April 2025, Phase 3 focuses on currency liberalisation and global integration. Argentina unified exchange rates, relaxed capital controls, and signed new financing deals worth over USD 23 billion. It also secured IMF support and advanced the EU–Mercosur trade pact.

5. How have Argentines been affected socially and politically?
Living standards fell sharply: mass consumption dropped over 10% in 2025, beef intake hit record lows, and social programmes were slashed. Politically, Milei has relied on heavy executive powers, faced corruption scandals, and risks losing support in the October 2025 midterms.

6. What are the risks for Argentina’s recovery?
While inflation is falling and credit ratings have improved, the reforms rest on fragile political backing. If Milei’s party underperforms in midterms, Congress could curb his decree powers or even push for impeachment, jeopardising the continuation of reforms.