Argentina's President Javier Milei is making waves with ambitious economic reforms aimed at radically transforming the country's taxing and spending structures. Since taking office on December 10, 2023, the firebrand leader has been inspired by prominent figures like Elon Musk and Vivek Ramaswamy, both of whom have touted major cuts to government spending akin to Milei's measures.
Milei's proposals are nothing short of revolutionary. He plans to eliminate 90% of taxes—not by cutting revenues, but by drastically reducing the number of taxes levied on citizens to just six. "We'll advance privatization, deepen labor reforms, and eliminate 90% of taxes—moving to a simplified system with no more than six taxes at most," he revealed during an interview with Forbes Argentina.
His administration quickly implemented sweeping cuts, slashing state spending by approximately 31% within his first ten months, which involved significant measures such as firing tens of thousands of public employees and closing half of Argentina’s 18 ministries. These actions have aimed to take what Milei characterizes as a “chainsaw” approach to reforming the state. "It is not only a question of deregulating and removing these obstacles, but it also implies a new reform of the state to make it even smaller," he explained during the interview.
These policies have caught considerable attention internationally, as Musk praised Argentina for its "impressive progress" post-Milei. Ramaswamy, influenced by Milei's strategies, has called for similar draconian cuts to the US federal government spending, referring to them as "Milei-style cuts on steroids." Milei himself remarked during his talk on the Lex Fridman podcast, advising Musk and Ramaswamy to go "all the way" with spending cuts.
Yet, amid such radical transformations, the impacts of Milei's reforms have sparked debate. Argentina has grappled with economic difficulties for years, but recent indicators suggest the country might be turning the corner. Inflation has plummeted from 25.5% last December to just 2.4% by November 2024, signaling potential stabilization.
Conversely, unemployment has surged, increasing from 5.7% to 6.9% during the third quarter of 2024 compared to the previous year. Economic activity, meanwhile, demonstrated growth at 3.9% during the third quarter, following positive adjustments from the second quarter. These trends have ignited concern from analysts, with Facundo Nejamkis, director of Opina Argentina, asserting to Reuters this month, "Milei's cuts ignited a major recession."
Alarmingly, Argentina's poverty rate continues to rise, hitting 52.9% during the first half of 2024—the highest figure seen in three decades. While Milei confidently declared the recession "over" during his address at the Argentina’s Chamber of Commerce and Services, economic realities paint a more complicated picture.
Looking forward, national projections present cautious optimism. According to BBVA forecasts, Argentina is on track to achieve fiscal balance for the first time since 2009, with expectations of GDP rebounding strongly from a 3.8% deficit this year to potentially 5.5% growth by 2025, spurred by investments and private consumption. The shift toward improved economic health is contingent on whether Milei's policies can sustain their initial momentum without exacerbation of existing issues.
The juxtaposition of Milei's aggressive reforms and significant challenges presents potential lessons for both Argentina and international observers. With major reforms targeting tax and state size, the world watches closely, assessing whether Milei's brand of economics will yield the growth and stability he predicts or deepen existing struggles, marking his legacy as either savior or disruptor.
