01.05.2025

No anarcho-capitalist quick-fix

Milei came to power promising to transform the Argentinian economy. He has overseen high unemployment, great poverty levels and the granting of more loans. But, says Michael Roberts, the IMF is happy

On April 14, the International Monetary Fund announced that it had agreed to lend Argentina a further $20 billion (on top of existing loans) to tide over president Javier Milei’s government in meeting its debt obligations and restoring its fast-falling foreign exchange reserves.

The deal will release an initial $12 billion, with $3 billion more coming later in the year. The government says that it is set to receive $28 billion in 2025 alone, including the $15 billion of IMF money, $6 billion from other multinational lenders, $2 billion from global banks and $5 billion from extending a currency swap with China. Milei boasted, “What you’ll have is a mountain of dollars” - with a target of doubling gross foreign exchange (FX) reserves to $50 billion.

With these funds, the government plans to ‘free’ the Argentine peso from controls and allow it to float freely within a moving band. The aim is expand the current band by 1% each month. The government and the IMF claim that this will eventually achieve a “fully flexible exchange rate in the context of a bi-monetary system, where the peso and US dollar coexist”. In other words, the financial speculators and investors will believe that the peso was strong enough to be fully convertible to the dollar without having to be devalued.

That has not been possible for decades, because of the huge dollar debts owed by the government and the lack of FX reserves to back the peso. Milei has targeted the year-end for undoing FX controls - or sooner if the IMF speeds up payouts: “The currency controls will no longer exist on January 1 [2026] - maybe sooner,” he said. As a result of the news, the ‘freed up’ official peso rate fell around 9% to 1,170 per US dollar, while, in contrast, the black-market rate strengthened - almost closing the gap between the official and informal rates that had widened sharply in recent years. However, the peso rate against the dollar remains no better than when Milei came to power at the beginning of 2024.

Despite his boast, until the IMF came to the rescue, FX reserves had been dropping fast, with net reserves (ie, after debt obligations and flows) at a negative $7 billion. That is not far short of the deficit that Milei inherited from the previous Peronist government.

Photo opportunities

Milei came into office in 2024, with the image of being a ‘free-market’, libertarian, ‘anarcho-capitalist’. He was going to close down the central bank and ‘dollarise’ the economy and he was going to free up the peso and Argentine industry to market forces. But soon all this anarcho-capitalist talk melted away and instead Milei was forced to adopt the standard neoliberal economic package for an emerging economy in debt distress and with hyperinflation: namely vicious cuts in public spending and services, alongside incentives to big business and foreign investors - and, of course, the backing of yet another IMF package. Milei wielded a chainsaw to both public-sector and private-sector jobs and in just a few months under his presidency, Argentina was facing the same job losses seen over the four years under the previous rightwing president, Mauricio Macri.

The IMF under managing director Kristalina Georgieva has been suitably impressed, holding lots of photo opportunities with Milei and stating, “The country appears closer to a semblance of macroeconomic stability than at any point since the 2000s.” What the IMF likes is that Milei is committed to a ‘net zero’ government budget. Having cut through public services and sacked thousands of government workers (while raising employee social security contributions), the government aims for a surplus in the budget (before interest payments) and an overall balance in 2025. It will go on squeezing government spending and raising taxes to run surpluses in future years - similar to the fiscal austerity programme that the EU ‘Troika’ imposed on Greece 10 years ago to pay back its loans (it is still paying them!), but this time with the enthusiastic support of the incumbent government.

In 2018, the IMF approved a $57 billion loan to the rightwing Macri government - its largest ever to a single country - nearly $45 billion of which was disbursed.¹ Most of this just financed capital flight of around $24 billion by ‘carry-trade’ speculators: ie, those using the funds to buy foreign bonds. The rest was used to amortise roughly $21 billion in unpayable sovereign bonds - debt that eventually had to be ‘restructured’ in 2020.

Now the IMF is loaning yet more money, violating its own lending rules. That is because, unlike in 2018, Argentina now has a law - passed almost unanimously by both houses of Congress in 2021 - requiring congressional approval for any IMF financing programme, with the aim of preventing future governments from borrowing massively in foreign currency without proper legislative oversight.² But the Milei government has bypassed the law by issuing a ‘Decree of Necessity and Urgency’ - the Argentine equivalent of Trump’s emergency executive orders - to avoid Senate approval altogether.

And the IMF is happy to go along with this. That is because it wants the Milei government to survive the mid-term Congressional elections by being able to show that inflation has come down, the economy is booming and the peso is stable. As the IMF says in its report, this will be possible, given “ongoing spending discipline, efficiency measures, and well-sequenced reforms of the tax, revenue sharing, and pension systems”. What is more, by

building on the impressive ongoing efforts to deregulate the economy, the programme seeks to deepen structural reforms to boost Argentina’s growth, including via its vast potential in energy and mining. Efforts will focus on further (i) strengthening product and labour market flexibility, and gradually opening the economy; (ii) improving state efficiency and its regulatory predictability; and (iii) enhancing governance and transparency, including by further aligning anti-corruption and AML/CFT [‘anti-money laundering’ and ‘combating the financing of terrorism’] frameworks with international standards.

It is true that inflation has fallen back from astronomical levels. That has been achieved by slashing government spending and holding the peso artificially above its real rate to the dollar, thus making imports cheaper. In effect, hyper-inflation has been replaced by a major slump.

The inflation rate has fallen from 300% a year to around 50% (still high). But that has meant a rise in real wages in the last half of 2024, taking the average back to the end of 2023. But during the whole of 2024, average real wages still fell 12% and public-sector workers took a hit of 20%, with 30% for informal workers without rights. The rise since mid-2024 is entirely due to improved incomes for informal workers in the private sector; public-sector waged workers are still down 20%, while for private-sector workers it is 5% - but all workers are still worse off than at the beginning of 2023.

Poverty

During the Milei-induced slump of 2024, the official poverty rate hit a record 51%. That has now dropped to 38%, due to a combination of the fall in inflation, the relative rise in informal wages, extra benefits in the universal child allowance and food support to cover inflation, aimed mainly at poor children and mothers. Without that, the World Bank reckons extreme poverty might have been 20% higher. Even so, the poverty rate is still as high as when Milei came to power.

Two-thirds of Argentine children under the age of 14 are living in poverty. Multidimensional poverty (measured as income, plus lack of access to key welfare factors) increased inter-annually from 39.8% to 41.6%, and within that figure structural poverty rose from 22.4% to 23.9%. In sum, 25%-40% of Argentine families are in deep poverty. And there has been a further increase in inequality. The top 10% of income earners now earn 23 times more than the poorest decile, compared to 19 times a year ago. The fall in income reached 33.5% year-on-year in real terms among the poorest decile, but only 20.2% among the richest. The Gini inequality index has hit an all-time high of 0.47.

But from here, Milei and the IMF are full of optimism. According to the IMF, real GDP growth is expected to expand by about 5.5% this year, and converge to about three percent over the medium term. But after the slump of 2024, such a rise in 2025 would only take per-capita GDP back to the level of 2021, when the economy was emerging from the pandemic. And indeed the per-capita GDP index would still be well below its peak of 2011, some 15 years later.

Inflation is expected to fall to around 18%-23% in 2025 and reach single digits by 2027 - as long as there is “a strict adherence to the fiscal anchor, along with a more robust monetary/FX regime with greater exchange rate flexibility to address shocks and strengthen aggregate demand management”³. In other words, indefinite austerity.

Martin Guzman, a former economy minister with the Peronist bloc, said that the risk of a new IMF deal was that the funds would simply be used to “firefight” the slide in the peso, eventually leading to greater debt loads: “The positive aspect of a new agreement would be the refinancing of the IMF debt, which begins to mature in September 2026. The negative aspect is more debt.”⁴ Contrary to Milei’s boast, Guzman reckoned that it was “highly unlikely” currency controls would be lifted soon, because it would allow global firms to flee an estimated $9 billion that had been stuck in the country, pressuring the exchange rate down and inflation up.

The key to economic success in Argentina, as it is in all economies, is an increase in the productivity of labour through more investment in the productive sectors of the economy. All the previous IMF loans ended up being smuggled or invested abroad or used for financial speculation. Neither rightwing nor Peronist governments did anything to stop this speculative robbery of the Argentine people and resources.

There are only two major economic sectors that have flourished under Milei - finance and mining. They provide little in the way of tax revenue and employ relatively few workers (4% of the total). By contrast, the three major sectors that are still deep in recession are construction, industry and commerce, which account for almost half (44.5%) of the job market. Argentina’s biggest export sector and source of foreign exchange is agricultural products and this sector is suffering a wave of debt defaults.

Argentina could possibly get out of its mess if there were a boom in commodity prices, as there was in the early 2000s. The country is the world’s largest exporter of soya bean oil and meal, the number two exporter of corn and the third biggest exporter of soya beans (although, for now, soya bean and corn prices are not very buoyant). Argentina has the world’s third-largest lithium reserves, making it a key player in the global energy transition. However, lithium prices have dived recently. Argentina also has considerable reserves of shale gas. The Vaca Muerta oilfield is one of the world’s largest unconventional hydrocarbon resources, with an estimated 16 billion barrels of oil and 308 trillion cubic feet of natural gas, and just coming on tap. But oil prices have fallen.

And Trump’s 10% tariff hike on all US imports will just add to Argentina’s export woes.

Michael Roberts blogs at thenextrecession.wordpress.com