Milei's reforms have put Argentina on a path to success

Heading into Argentina’s legislative elections this month, commentary about [its] economic and financial prospects was growing increasingly pessimistic.

- NOURIEL ROUBINI

With a significant amount of foreign debt coming due next year, the conventional wisdom was that an exchange-rate-based stabilization programme—letting the currency depreciate by less than the inflation rate to push inflation down—had led to a massively overvalued currency and an external deficit that was bound to precipitate a crisis. But I thought this consensus was far off the mark.

Breaking from the pattern of past failed economic-stabilization episodes, Argentine President Javier Milei used his 2023 election victory to implement the strongest fiscal-austerity and structural-reform policies in the country’s history. In 2024, the primary fiscal adjustment (excluding interest payments) amounted to 5% of GDP, setting the stage for a strong economic rebound after some early softness.

At that point, the Argentine peso may have been modestly overvalued, given the lack of a fully flexible currency regime, but at least the current-account deficit was very small. If the country regained market access, it could roll over its looming external debt liabilities; and if electoral uncertainties could be overcome, Milei’s reforms and the country’s huge natural-resource endowments were bound to attract huge amounts of foreign direct investment (FDI). Moreover, the inflation rate had already dropped dramatically from over 100% before Milei's election to around 30%.