Argentina’s Macroeconomic Inferno Rages

On October 26, Argentinian President Javier Milei, who has allied himself in recent months with American conservatives, held onto his spot in power by winning more than 40% of the vote in the Argentinian midterm legislative election. Analysts believe that Milei’s party –

Freedom Advances – wants to control a third of the electoral seats with its allies, allowing them to veto legislation and prevent Milei’s impeachment. As Milei moves forward, inflation and the country's wide array of economic challenges stand at the forefront of his presidency. Inflation has historically challenged Argentina and caused a rapid repeated devaluation of its currency. Since the mid-twentieth century, Argentina has succumbed to massive vote-buying scandals that have driven inflation higher and pushed down the nation’s standard of living. The country has repeatedly convinced lenders across the world over the last five decades that it has changed its ways, only to fall back into fiscal instability.

Running on a platform of solving this crisis in 2023, outsider Javier Milei won the Argentinian presidency. He promised to greatly downsize government, slash spending, and even replace the peso with the dollar. Within months of his victory, the size of the government decreased drastically, the budget-deficit imbalance eased, and inflation slid from 200% at the end of 2023 to 32% in September. Analysts from The Wall Street Journal stated that he even generated the first Argentinian fiscal surplus in sixteen years. However, these economic victories have been diluted by recent fiscal challenges.

The United States is providing $20 billion to shore up the peso amid a wide currency crisis, while the Trump administration is additionally pressuring private investors to provide another $20 billion – approximately enough to buy up the country's peso monetary base. Writers from Forbes believe that this proposal from the US reflects bad monetary policy that prevails in much of the world, with many claiming an attempt to save the peso is hopeless. Some believe that, with these new policies and grants, the best fiscal move is to rid Argentina of the peso and move to the dollar, in an attempt to save them from falling back into catastrophic inflation. For Argentina, dollarizing the economy could also modify high export taxes and rid the nation of certain capital controls. Furthermore, internal taxes run rampant in Argentina, damaging their productive capabilities. The distortionary taxes, like the costly pension system, amount to 8.8% of the nation’s GDP, up from 3.9% in 2001 prior to Peronist President Néstor Kirchner taking office. The financial transactions tax harms businesses and citizens alike, with an additional amount being charged per withdrawal or deposit, among other complex tax policies. As nations from Japan to the United States deal with inflation of their own, Argentina’s need for disciplined and decisive policy under Javier Milei has never been clearer.