July 26th, 2025
A Brief History of Argentina’s Problems with Inflation
Argentina’s inflationary roots trace back to the mid-20th century with the rise of Juan Perón in the 1940s. Perón ushered in a state-centric model of governance that emphasized expansive social spending, nationalization of industries, strong labor protections, and a distrust of market mechanisms. While these policies lifted many Argentines into the middle class, they also set the stage for persistent fiscal deficits. Rather than cutting spending or raising sustainable tax revenue, governments often financed deficits by printing money, which steadily eroded the peso’s value and created a culture of inflation that became difficult to reverse.
By the late 1980s, this model culminated in hyperinflation, with prices rising by over 3,000% in 1989. To restore stability, the government introduced the Convertibility Plan in 1991, pegging the Argentine peso 1:1 to the U.S. dollar. The idea was simple: limit the government’s ability to print money by requiring that every peso in circulation be backed by a dollar in reserve. Initially, this brought inflation under control and created a sense of economic normalcy. However, over time, the fixed exchange rate made Argentine exports too expensive and imports too cheap, leading to chronic trade deficits and a drain on the country’s dollar reserves.
By the late 1990s, Argentina was in a deep recession and increasingly dependent on borrowing U.S. dollars to finance its budget. As investor confidence evaporated, capital flight accelerated and the Central Bank’s reserves dwindled. In an attempt to contain the crisis, the government froze bank withdrawals, defaulted on its debt, and imposed harsh austerity. With no dollars left to maintain the peg, the government was forced to abandon it in early 2002. The peso rapidly devalued from 1:1 to around 3:1, effectively wiping out people’s savings and triggering a new surge in inflation. This moment marked not just a currency collapse, but a turning point into a prolonged period of distrust in monetary policy — one that still defines Argentina’s economy today.
The inflationary spiral continued into the 2010s as Argentina leaned back into heavy state intervention. Under the Kirchners, the government imposed price controls, subsidies, and capital restrictions while financing deficits by printing money. Inflation rose steadily — often masked by manipulated statistics — and confidence in the peso eroded. Mauricio Macri’s attempt at market reforms in the mid-2010s brought temporary optimism, but without structural change, the country slid back into crisis. By the early 2020s, inflation was deeply embedded in daily life, often surpassing 100% annually. When visiting Argentina in 2019, I experienced this first-hand, with restaurant owners printing new menus monthly to hike prices.
In 2023, libertarian economist Javier Milei was elected on a platform of shock therapy — pledging to slash public spending, eliminate the Central Bank, and restore fiscal discipline. I haven’t really spent the time to research or impact of his presidency until now, so thought to dig in.
Policy Reform
Guided by his libertarian principles, Milei entered office with a clear mandate: end Argentina’s chronic deficits and rein in the size of the state. His approach was aggressive and immediate, aiming to reset the country’s economic foundations through deep austerity and structural reform. The core of his 2023 agenda came down to four bold moves:
- Reducing the size of the federal government
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De-regulation by decree
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Eliminating subsidies
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Cuts to science, education, and research
Reducing the size of the federal government
Milei’s first action was reducing the number of state minitries (US-equivalent of departments) that Argentina had -- slashing and consolidating this number from 9 to 18. Key cuts were
As part of these cuts to minitries, Milei implemented sweeping layoffs across the public sector, cutting more than 34,000 government jobs — roughly 7% of the federal workforce. The rationale was that many of these roles were unnecessary or politically appointed, part of what he termed “a parasitic state.” The layoffs were concentrated in non-essential agencies and politically sensitive ministries. While it generated significant savings (estimated at $3.8 billion annually), it also contributed to rising unemployment and drew backlash from unions and affected provinces.
Milei also made decisions to streamline and reform tax collection, Milei dissolved AFIP (the federal tax authority) and created a new agency, ARCA. This restructuring reduced tax agency staffing by 30–45% and was intended to make the system more efficient, less corrupt, and more digitally integrated. The reform also included measures to simplify compliance and reduce administrative costs, saving the government an estimated $6.4 million annually. However, some experts questioned whether the disruption would temporarily weaken revenue enforcement. This was emblematic of Milei’s broader push to shrink the state while modernizing its remaining parts.
Deregulation by decree
One of Milei’s boldest early actions was a massive deregulation package: Decree 70/2023. It repealed or modified over 300 existing laws, including restrictions on rent controls, labor protections, trade licensing, and price regulations. The decree aimed to “free the economy” and dismantle decades of what Milei viewed as excessive state interference. Some of the cuts inclued:
- Law No. 20,680 – Supply Law (1974): Gave the government broad powers to regulate prices, supply quantities, and penalize hoarding or unjustified price hikes.
- Law No. 27,545 – Supermarket (Góndolas) Law: Required shelf space limits and quotas for SMEs and cooperatives in supermarkets.
- Law No. 26,992 – Price Observatory Law: Established an agency to monitor price dynamics and product availability.
- Decree Law No. 15,349/46, Law No. 13,653, Law No. 20,705: Codes governing mixed-economy and state-owned companies. Decree 70 mandates conversion of all state firms to joint-stock companies under standard corporate law.
- Law No. 27,437 – “Compre Nacional”: Preference system for national suppliers in government procurement was repealed to promote competition
- Law No. 27,551 – Rent Law (2020): Limited rent increases to once per year, and required minimum three-yaer lease terms. It also allowed contracts to be signed in US dollars.
The most interesting for me personally is Law No. 27,551 – Rent Law (2020). By having rent be more market-driven, this caused the supply of rental units in Buenos Aires to more than double (up ~2.7 to ~2.9x) within months. Namely, due to the rent controls in place previously, many apartment owners were withdrawing their properties to the market. These restructions made renting unprofitable, especially during high-inflation times. If you have 25%+ monthly inflation - that is also unpredictable to forecast - why would you enter in a lease that you can only negotiate once per year? Repealing the law also let landlords denominate in US currencies, giving them a margin of safety vs. inflationary pressures. This increase in supply led real rents to decrease by 40%.
Eliminating subsidies
A key piece of Milei’s deficit-reduction strategy was cutting utilities and transport subsidies — many of which had kept consumer prices artificially low. While on the surface this seems like a smaller line item to cut, energy and transport subsidies had reached 4% of GDP in some years.
These subsidies kept prices for electricy, gas, and transport artifically low, often below cost. This led to dramatic overconsumption, wastem and underinvestment in energy systems. Why save water or energy when prices are very low?
By cutting this expenditure out allowed Argnetina to reduct the fiscal deficit and slow inflation, it didn’t come without a cost. For example, public transport fares rose from 77 ARS to over 370 ARS in Buenos Aires after federal subsidies were withdrawn. Lower-income households were hit the hardest, given this drastic price increase.
What’s interesting about the subsidies is that the majority - on an absolute basis - were going to higher-income households wihch have much larger energy needs (e.g., larger homes = more water consomption, more cars that need gasoline, etc.). One alternative that Milei could have taken is doing targeted cash transfers - similar to what we have with US SNAP programs - while still cutting subsidies. This would eliminate most of the deficit, while still ensuring low-income households were hit less hard.
Cuts to science and research
Milei also slashed spending on universities, scientific research, and public education. The national research council (CONICET) faced a budget cut of roughly 33%, and hundreds of researchers and technicians were laid off. Universities reported funding shortages, with some warning they could not afford to continue operations beyond mid-2024. Milei defended the cuts as part of a broader effort to reduce state overreach and focus on private-sector-led innovation. The move was heavily criticized by academics and students, sparking large protests and concerns about long-term damage to Argentina’s knowledge economy.
What is the impact?
Net-net, on the surface, Milei’s cuts seem overwhelmingly positive:
Federal Deficit:
Inflation:
GDP Growth:
Real Wages:
Unemployment Rate:
Poverty Rate:
6.9% deficit of GDP
211%
-1.6% YoY
-20% YoY
6.4%
42%
0.3% surplus of GDP
40%
+7.6% YoY
Flat YoY
7.9%
32%
In just over a year, Argentina has staged one of the most dramatic economic turnarounds in its modern history. Under President Javier Milei, the country has gone from a 6.9% fiscal deficit to a budget surplus, slashed inflation from 211% to 40%, and flipped negative GDP growth into a +7.6% expansion—all in under 18 months.
Even poverty has fallen by 10 percentage points, and real wages, which had been plummeting, have stabilized. These are early but significant signs that stabilization is translating into tangible improvements for everyday Argentines.
The one lagging area: unemployment
Unemployment rose from 6.4% to 7.9% over this period, driven largely by the elimination of nearly 50,000 public sector jobs. These cuts, along with contractions in sectors like transportation, directly contributed to the increase.
From a macroeconomic perspective, this may reflect a classic J-curve dynamic: short-term pain from public sector downsizing, followed by long-term gains as the private sector rehires—supported by 7.6% YoY GDP growth.
Notably, this unemployment figure may understate the full picture: self-employment and informal jobs grew by ~225,000 during the same period. While not counted in official unemployment stats, these roles often come with lower pay, fewer benefits, and less stability.
While easy to view analytically, unemployment isn’t just a statistic—it’s a window into the social costs of rapid reform. Milei’s policies may be stabilizing Argentina’s economy, but the near-term job losses highlight the human side of structural adjustment.
Questions not answers?
While this is just one instance of improvement, this article raises more questions than answers for me, in particular:‘
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Would this work in the US? Why are why not? What are the budget differences that would make it more difficult to achieve (e.g., higher defense spending)?
- What is the correlation betweeen GDP growth and socialist vs. libertarian economic views?
- How much ‘innovation’ is the result of state-funded R&D vs. capitalist-funded R&D?
In the end, Argentina’s experiment may prove that bold economics can deliver results—but the real question is whether other nations have the political will, fiscal structure, and social resilience to follow.