Has Javier Milei’s shock therapy worked for Argentina?

Argentina’s economy has a history of chronically low growth, high inflation and successive crises that goes back decades.

But President Javier Milei’s ‘shock therapy’ of spending cuts and currency devaluation appears to be turning things around – the economy is growing again; inflation, while still high, has fallen sharply; and the country is gradually returning to international capital markets.

Paul and Luke speak to Tettey Addy, Emerging Markets Economic Analyst, about Milei’s unexpected successes with economic orthodoxy and the challenges that still lie ahead. Is this the start of a new chapter for Argentina — or just another false dawn?

Some highlights:

‘Chainsaw’ economics. Milei came to power in late 2023 promising to slash public spending and overhaul Argentina’s economic model. He’s delivered sharp fiscal cuts — turning a 4.4% deficit into a small surplus — and devalued the peso by 55%, ending years of currency mismanagement.
Inflation and growth. Inflation, which peaked at over 280%, has dropped to 47% year-on-year. The economy is expected to rebound by more than 5% in 2025, after two years of recession. Markets have responded positively, with bond spreads narrowing and investor sentiment improving.
The IMF returns. Argentina’s 23rd IMF deal, signed in April, provides US$20 billion in funding and supports a shift to a managed float for the peso. Capital controls have been partially eased and the government is aiming to rebuild currency reserves and market credibility.
Risks ahead. Despite early success, challenges remain. The real exchange rate has appreciated, hurting exports. Social spending cuts could test public support. With mid-term elections looming, Milei’s ability to push through deeper reforms is uncertain.