Global Macro Research
Global Macro ResearchArgentina’s shock therapy yields results, but normalisation remains a way off
President Javier Milei has overseen sharp policy shifts aimed at stabilising the country’s economy, including fiscal consolidation and disinflation. The latest IMF deal and peso liberalisation are further positive steps. But sustaining this progress and a major return to international capital markets will require further reform and is not guaranteed.
Author
Tettey Addy
Emerging Markets Economic Analyst
Duration: 1 min
Date: 28 May 2025
Key Takeaways
- Argentina has endured tough reforms since Javier Milei became president in December 2023.
- After an initial spike in inflation caused by the peso’s devaluation, price growth has significantly moderated, while the economy is set to return to growth in 2025.
- The government’s latest IMF deal, agreed in April, gives another reason for cautious optimism.
- The four-year deal provides an immediate boost to FX reserves, though they remain minimal. In exchange, the peso has transitioned from its crawling peg to a managed float, with the aim of reducing its overvaluation, while several capital controls have also been lifted.
- However, sustaining enough reform momentum for a major return of international investors is far from guaranteed.
- Stronger growth and a recovery in real incomes should help Milei at the October 2025 mid-term elections. An increased seat share for Milei’s LLA party would be favourable for policy implementation over the remainder of his current term.
- That said, still high inflation, potential for overvaluation to exert greater downward pressure on the currency, and minimal FX reserves, suggest shock therapy has not conclusively revived Argentina’s fortunes.
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