An analysis of Argentina’s comprehensive economic reforms (2023-2025)
This CESifo working paper by Marius Kleinheyer, Gunther Schnabl analyzes Javier Milei’s economic reforms. The study employs qualitative analysis of Argentina’s economic data from IMF, BCRA, and BIS sources, focusing on fiscal, monetary, and structural reforms rather than formal econometric modeling.
Findings
- Fiscal success: Argentina achieved its first budget surplus in 15 years ($1.6 billion in 2024) by cutting public spending by one-third, eliminating 40,000 civil service jobs, and halving the number of ministries.
- Inflation control: Inflation declined from 290% (April 2024) to 84.5% (January 2025), while central bank bond holdings dropped from $111 billion to $68 billion.
- Economic recovery: After initial contraction, the IMF projects growth of 3.5% in 2024 and 5.0% in 2025, with poverty rates ultimately declining below pre-reform levels following a “J-curve effect”.
- Deregulation impact: Over 350 laws were targeted for reform, price controls were eliminated, and rent control removal added 200,000 housing units to the market.
The authors conclude that Milei’s comprehensive market-oriented reforms demonstrate successful macroeconomic stabilization and could serve as a model for other countries facing similar challenges.
Argentina: Javier Milei’s Reform Agenda from a Theoretical and Empirical Perspective
Authors: Marius Kleinheyer, Gunther Schnabl
From: CESifo
The hidden risks of American rescue
Despite Milei’s “shock therapy” economic program that included massive government spending cuts and public sector layoffs, Argentina faces renewed turmoil. The crisis was triggered by a corruption scandal involving Karina Milei, the president’s sister, who faces allegations of receiving kickbacks. This spooked investors and accelerated dollar outflows from the economy.
Argentina’s dual currency economy – functioning with both pesos and dollars – makes it vulnerable to sudden market sentiment shifts. When turmoil hits, Argentinians move savings from pesos to dollars, creating a cycle where peso devaluation leads to more distrust and further currency flight.
The US rescue package
Treasury Secretary Scott Bessent has announced that “all options are on the table” to help Argentina, describing it as a “systemically important ally in Latin America”. The assistance package includes up to $20 billion in currency swaps, direct currency purchases, and purchases of US dollar-denominated Argentine government debt. This support comes on top of Argentina’s existing $20 billion IMF program approved in April 2025.
This Peterson Institute analysis warns that the US rescue may create new complications:
- Dollarization risk: The crisis could push Argentina toward full dollarization – formally adopting the US dollar as legal tender. While Milei originally campaigned on this idea, it would mean Argentina loses control over its monetary policy and ability to respond to economic shocks. The author notes that “dollarization is a one-way street” with countries like Ecuador still trying unsuccessfully to reverse the process.
- Geopolitical complications: Full US backing of Argentine dollarization could weaken the IMF’s influence at a time when the multilateral system is already under stress. It might also create conditions for regional confrontation with China, as the US seeks to counter Chinese influence in Latin America.
- Economic straitjacket: The analysis points to the eurozone crisis as an example of how abandoning domestic currency can force excessive austerity on countries during economic stress. Once dollarized, Argentina would lose the policy flexibility that comes with controlling its own currency.
- Political calculations: The rescue appears driven more by ideological alignment between Trump and Milei than strategic economic considerations. Critics argue this represents support for a politically embattled ally rather than sound economic policy.
Argentina is in crisis. A US rescue may invite new problems.
By: Monica de Bolle – Peterson Institute for International Economics
