When Javier Milei resumed office as Argentina’s new president in December, it marked a historic first. Never before had the country elected a doctrinaire libertarian to lead it. But it wasn’t surprising because Argentina’s economy needed urgent rescuing. After decades of misguided policies, Argentina became the bedtime horror story that other economies use to scare each other. And it would take a series of economic ‘miracles’ to revive it.
The initial ‘miracle’ happened in January when the government had a positive balance for public-sector finances of $589 million. It was the country’s first budget surplus in about 12 years. And, all of a sudden, a country that lost access to the capital markets is making a comeback into investors’ watchlists.
Notably, the macro-economy hasn’t improved. Poverty levels are currently at a 20-year-high in Argentina, partially because Milei devalued the peso shortly after his inauguration. Argentina saw an inflation rate for January of 20.6%, with a 12-month rate of 254.2%. However, there are lessons for many African leaders in his approach to restoring fiscal stability.
Since 1950, Argentina has spent more time in recession than any other nation except the Democratic Republic of Congo. Last year was no different, with the economy plunging into its sixth downturn in a decade.
The country’s only remaining lifeline, a $43 billion deal with the International Monetary Fund, was fraying because the previous government missed deficit targets, spending big before losing the election by a landslide. Many African countries can relate. Nigeria, for instance, tripled its debt burden in less than eight years before its most recent election and still ended up in a recession. Both Nigeria’s and Argentina’s new presidents took on extremely tough jobs as they needed to rescue fragile economies. Yet there’s a night-and-day difference between their approaches.
The first and probably most notable lesson is that Milei acknowledges his country’s fiscal reality. In his first speech to the nation, Milei had an ominous tone and warned that he would start the term with an abyssal cut to public spending of around $20 billion. “There is no possible alternative to the adjustment. There is no money,” he said. He painted a scenario so stark that even the thousands of supporters gathered in the streets fell silent during part of his speech. Anticipated spending cuts were equivalent to 5% of GDP, and Milei hinted that he would eliminate subsidies for public transportation, gas, electricity and water. Nothing about these measures is pleasant. But they weren’t surprising.
The second learning point is in Milei’s body language. His route was unconventional and controversial, so he had to lead by example through a frugal lifestyle. He started flying commercial class to show the people his administration had no plans of living large at their expense. We might argue about whether or not this move makes any direct impact on the country’s finances. But what’s more important is the message. Nigeria’s new leader, who also touted a subsidy-free economy, allowed the purchase of several new vehicles for himself, his wife, aides and senators shortly after asking the public to endure the new pain shockwaves.
Maybe Milei would successfully reset Argentina’s economy; maybe he won’t. But what’s clear from his first few months in office is that cutting governance costs is crucial to reviving an ailing economy. Argentina’s budget miracle may not be replicable (or even desirable) for every country. But at least it shows what’s possible.
