The Milei Reset: Argentina Two Years On

Javier Milei took office on 10 December 2023 in the middle of a full-blown crisis: annual inflation at 211 per cent, a fiscal deficit of 5 per cent of GDP, and a shrinking economy. Two years later, macroeconomic stabilisation is beyond dispute — inflation has been crushed, the first fiscal surplus in 14 years has been delivered, and GDP is growing again. But the social cost of adjustment has been heavy: real wages have collapsed, pensions and education and science funding have been slashed, and manufacturing is in the grip of a structural crisis. This analysis lays out the changes through every available indicator — the good and the bad alike.

Starting Point — What Did Milei Inherit?

When Milei was sworn in, Argentina’s economy was in critical condition. Annual inflation was running at 211.4 per cent; monthly inflation had peaked at 25.5 per cent in December; the fiscal deficit stood at 5 per cent of GDP; the economy had contracted for a second consecutive year (−1.6%); the poverty rate was 41.7 per cent (19.5 million people below the poverty line); net foreign reserves were at −$11 billion; and the country risk index (JP Morgan EMBI) sat at ~2,000 basis points. The informal economy accounted for roughly 40 per cent of the labour force, and the labour tax wedge was 44 per cent — the highest in the region.

Inflation — The Most Dramatic Turnaround

Taming inflation is Milei’s clearest win. Monthly CPI fell from its December 2023 peak of 25.5 per cent to 1.5 per cent by May 2025 — a five-year low. Wholesale prices dropped 0.3 per cent in May 2025, a 17-year record. All of this was achieved without price controls, by ending monetary financing of the deficit and liberalising markets. Between December 2023 and January 2025, the central bank cut the policy rate by 102 percentage points.

The annual inflation path: ~211% (2023) → ~118% (end-2024) → 43.5% (mid-2025, trailing 12-month). The central bank forecasts 28.6 per cent annual inflation by end-2025; Allianz Trade projects 18–23 per cent, with single digits by 2027.

Fiscal Balance — A Historic Turn

In his first year, Milei turned a deficit equivalent to 5 per cent of GDP into a surplus — the first primary fiscal surplus in 14 years. In 2024, the primary surplus reached 1.8 per cent of GDP. The target for 2025 is 1.3–1.6 per cent. The IMF described the scale of adjustment as unprecedented in the country’s modern history.

The government cut spending by roughly 4.5 per cent of GDP: it eliminated subsidies on gas, electricity and transport, halted public works projects, downsized the public sector and reduced the number of ministries. The PAIS import tax was abolished in December 2024.

GDP Growth — Bouncing Back from Recession

In 2024 GDP contracted for a second consecutive year (−1.7%), but 2025 brought a sharp turnaround. In April 2025, year-on-year economic growth came in at 7.7 per cent — the fastest expansion since 2022. The OECD projects 5.2 per cent for 2025, the IMF 4.5 per cent, and BBVA Research also 4.5 per cent. The consensus points to average annual growth of ~3 per cent through 2030, compared with zero growth over the past decade. JP Morgan’s regional analysis put Argentina among Latin America’s highest-growth markets for the second half of 2025.

Poverty and Inequality — A V-Shaped Trajectory

The poverty rate followed a V-shaped path: from 41.7 per cent (H2 2023) it spiked to 52.9 per cent as the shock hit (H1 2024), then plunged to 31.6 per cent by H1 2025 — the lowest level since 2018. According to UNICEF data, 1.7 million children have been lifted out of poverty since Milei took office. Extreme poverty fell to 6.9 per cent. Yet more than 14 million Argentines — nearly a third of the population — still count as poor.

Inequality (the gap between the top and bottom income deciles) widened from 19 times to 23 times by Q1 2024, then narrowed back to 19 times by Q1 2025. In other words, the shock widened inequality, but the V-shaped pattern showed up here too.

Real Wages — The Social Cost of Austerity

The December 2023 peso devaluation of 54 per cent sent monthly inflation from ~12 per cent to above 25 per cent, triggering a collapse in real wages. According to the Faculty of Economics at the University of Buenos Aires (UBA), the real minimum wage fell 34 per cent between November 2023 and September 2025, dropping below its 2001 level — the level it held before the convertibility regime collapsed. According to CELAG, a Latin American research centre, Argentina had the lowest minimum wage in dollar terms in all of Latin America as of November 2025.

Real wages have been rising since mid-2024, but unevenly: the improvement is concentrated in the private sector and export-oriented industries, while the informal sector (~43 per cent of the labour force) has lagged. Pension purchasing power fell 22 per cent over one year.

Unemployment rose from 5.7 per cent (Q3 2023) to 7.9 per cent (Q1 2025 — the highest since 2021), then fell to 6.6 per cent (Q3 2025), before climbing back to 7.5 per cent (Q4 2025). Underemployment stands at 12.3 per cent; only 56.9 per cent of workers hold a formal, registered job, with the rest employed informally.

Energy and Vaca Muerta — The Hidden Engine

One factor accounts for most of the improvement in the trade balance and the headline macro figures: the ramp-up at the Vaca Muerta shale oil and gas field, which now accounts for the bulk of the country’s unconventional production — roughly 70 per cent of all oil and gas output.

In 2025 Argentina broke its all-time oil production record: in November, output averaged 864,000 barrels per day, surpassing the 1998 peak. In H1 2025, the country posted a 35-year record energy trade surplus of $3.761 billion, 53 per cent more than the same period in 2024. This is a dramatic reversal: in 2022, the energy sector was still running a full-year deficit of $4.4 billion.

Industry estimates suggest energy exports could reach $30 billion annually by 2030 — surpassing agricultural exports. Construction of the Vaca Muerta Sur oil pipeline (a $2.5 billion investment) began in January 2025, and work has also begun on LNG export capacity. The RIGI investment incentive offers 30 years of tax stability for large investors.

Industry and Construction — The Other Side of GDP

The sectoral breakdown behind the GDP figures paints a worrying picture. Industrial output fell 8.7 per cent year-on-year in November 2025: 15 out of 16 manufacturing sectors declined. The sharpest drops were in textiles (−36.7%), automotive (−23.0%), metal products (−18.6%) and machinery (−17.9%).

Construction fell 4.1 per cent month-on-month in November — the largest drop of the year. In 2024, construction output plunged 21.1 per cent in real terms, primarily because public works spending was cut to zero.

Sebastián Menescaldi, an analyst at EcoGo, an economic consultancy, argues that manufacturing is being hit not by a cyclical downturn but by a structural shift: a “paradigm change” in which some sectors cannot compete with cheaper imports. Manufacturing output has fallen in five of the last six months.

Financial Sector and Currency Position

Credit Expansion — The Hidden Counterweight to Fiscal Austerity

The dollar value of bank lending to the private sector tripled between end-2023 and March 2025. The additional credit totalled roughly $56 billion, or nearly 10 per cent of national income. This partly offset the deflationary impact of fiscal austerity — fiscal discipline was contractionary, but credit expansion artificially propped up domestic demand. Grupo Financiero Galicia, Argentina’s largest private bank, raised the share of loans in its total assets from 30 to 40 per cent.

Bank Deposits and Confidence

Private-sector dollar deposits have doubled since Milei took office: they reached $36 billion, the highest since 2002. The tax amnesty prompted roughly 300,000 Argentines to declare close to $20 billion. Yet estimates suggest some $204 billion in cash remains outside the banking system — “under the sofa, buried in the garden, or sitting in bulletproof bunkers”, as Bloomberg put it.

Foreign Reserves and Exchange Rate

Net foreign reserves improved from −$11 billion to −$5 billion — still negative. In April 2025, the IMF approved a $20 billion, 48-month Extended Fund Facility programme ($12 billion of it immediate). This is Argentina’s 23rd IMF programme since 1958.

The exchange rate moved from the previous crawling peg to a floating band (1,000–1,400 ARS/USD, with band limits widening 1 per cent per month), but came under severe pressure in September–October 2025 — only an unusual US intervention averted a currency crisis, which is hardly a sustainable fix. The multilateral real exchange rate was 14 per cent above its historical average in October 2025, indicating that the market considers the currency overvalued.

Education, Science, and Human Capital

One of the most contentious — and least measured — costs of austerity is the drastic cut in education and research funding.

By 2025, the university budget was 35–36 per cent lower in real terms than in 2023. Overall education spending fell more than 30 per cent in real terms. Teacher training and technology programmes were cut 40 per cent, early childhood education infrastructure 60 per cent, and scholarships for low-income students fell 40 per cent.

CONICET (the National Scientific and Technical Research Council) froze its research fellowships; 250 researchers left the institution in 2024. The I+D+i (Research Funding Agency) did not spend a single peso from its available research fund for months. The Argentine National Academy of Sciences issued a statement expressing its “deep concern” over the defunding of science and education, warning that prominent researchers were emigrating.

In October 2024, Milei vetoed a university funding bill that would have cost just 0.14 per cent of GDP. On two occasions, more than a million people took to the streets to defend public education — the largest protest series of the Milei era. All five of Argentina’s Nobel laureates graduated from public universities.

Structural Reforms and Political Landscape

Milei pushed through reforms using two main legal instruments: the “Ley Bases” (June 2024) and an earlier emergency decree (DNU). The main measures:

• Capital controls lifted (April 2025): most currency and capital restrictions were removed; companies may repatriate profits from 2025.
• RIGI investment incentive: 30 years of tax stability, plus tariff and foreign-exchange benefits for large investors in energy, mining, technology and infrastructure.
• Rental market liberalisation: more flexible contract terms; housing supply has risen in Buenos Aires.
• Labour market deregulation: longer probation periods, modified severance rules, plans to review collective agreements.
• Import restrictions lifted, price controls abolished, hundreds of regulatory norms eliminated.
• Privatisation of state enterprises: Aerolíneas Argentinas, Belgrano Cargas y Logística and others.
• Tax amnesty: roughly $20 billion in declared assets, ~300,000 participants.
• Soy export duties cut: from 31% to 22.5%.

At the midterm elections in October 2025, Milei’s party (La Libertad Avanza) won 41 per cent of the vote and doubled its congressional representation: from 37 to 95 seats in the lower house, and from 7 to 20 in the Senate. This gave him the numbers to sustain his vetoes, but he still lacks a majority — he will need allies for further reforms. The Peronist opposition remains the largest minority in both chambers.

Comprehensive Assessment and Open Questions

Undeniable Results

• Inflation crushed (annual: 211% → ~44%, monthly: 25.5% → 1.5%) using market tools, without price controls
• First primary fiscal surplus in 14 years (+1.8% of GDP)
• Country risk premium halved (~2,000 → ~750)
• GDP growth returns (OECD: +5.2% for 2025)
• Poverty falling from the 2024 peak (52.9% → 31.6%)
• Record energy production and trade surplus
• Capital controls largely lifted and $20 billion IMF agreement

Undeniable Costs

• Real wage collapse (minimum wage: −34%, below 2001 level; lowest in dollar terms in Latin America)
• 22% loss in pension purchasing power
• University and science funding cut 35–40% in real terms, research brain drain
• Sharp falls in industrial output (−8.7% in Nov.) and construction (−21.1% in 2024)
• Rising unemployment (5.7% → 7.5%), rising informality (~43%)
• Infrastructure spending effectively eliminated (−90%)

Open Questions — What Markets Are Watching

1. Exchange rate sustainability: The overvalued peso (multilateral real exchange rate 14% above average) is causing competitiveness problems. Is the exchange rate system sustainable without US intervention?
2. Foreign reserves: Net reserves are still negative (−$5 bn). The IMF targets +$4 bn for 2025 — but the June target was already missed.
3. Credit bubble risk: The tripling of bank lending (~$56 bn) offset fiscal austerity — but what happens when the credit cycle turns?
4. Dutch disease: Energy export dominance could weaken manufacturing and agriculture.
5. Human capital: The effects of cuts to science and education will play out over decades.
6. Political sustainability: Argentina’s history is littered with reform cycles swept away by political reversals. Milei’s veto-sustaining minority matters, but he lacks a reform majority.

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