Narayan AmmachchiArgentina’s battered economy is finally showing signs of revival. President Javier Milei’s radical “shock therapy” is beginning to bear fruit.
The fiscal rebound is already visible in the stock market — often viewed as the pulse of the economy. The MERVAL index, Argentina’s benchmark, surged by a staggering 172% in local currency terms in 2024.
Economic activity is also gaining traction. As of February, output rose 5.7% year-on-year — marking the fourth consecutive month of growth and the strongest pace since June 2022. The IMF expects the country to register 5.5% growth for 2025. According to President Milei, the economy is expanding at an ‘unadjusted’ annual rate of 10%.
This turnaround didn’t happen by chance. It came only after Milei took aim at two of Argentina’s most entrenched problems: a volatile currency and runaway inflation.
The Shock Therapy
During his election campaign, Milei wielded a symbolic chainsaw, vowing to slash public spending. Once in office, he fulfilled his promise.
Austerity hit like a hammer blow. Within months, real public spending was slashed by 30%, as the President cut subsidies for gas, electricity, and other public utilities. More than 36,000 public sector employees were laid off. Twelve ministries were eliminated. Four others — Education, Labor, Social Development, and Culture — were merged into a single super-ministry called Human Capital.
Initially, the shock therapy lived up to its name — shocking even the president. For weeks, Buenos Aires’ international airport appeared eerily empty. Trains and subways fell silent. Garbage piled up on the streets as thousands of public workers went on strike in protest.
Yet beneath the mounting social tension, the economic logic began to take hold. Inflation, which had soared to nearly 300% annually, finally began to fall.
Next came a wave of deregulation. The Milei administration eliminated state controls, including those on house rent and consumer prices. As supply increased, rents dropped over a matter of months.
“I lived a year in Argentina in the mid-2010s, and the economy at that time was in a terrible state — shortages, currency controls, out-of-control inflation, clogged ports — you name it. I was not optimistic about it ever turning around,” said Fergus Hodgson, Director at Econ Americas, a US-based financial consultancy, and author of The Latin America Red Pill.
Hodgson, however, disagrees with labeling Milei’s policies as “shock therapy.”
“He cannot — and has not — enacted the kind of shock therapy he would ideally like to. Still, he has generated many positive outcomes in just a year and a half.”
Devaluing Currency
Still, many economists argue Milei’s decision to devalue the peso was a textbook case of shock therapy. The president devalued the official exchange rate by more than 50% — a bold move to align it more closely with the black-market “blue dollar” rate.
Rather than defending the peso through artificial means, the government allowed market forces to set its value. This began restoring investor confidence and gradually squeezed out parallel currency markets.
The result was dramatic. By the end of 2024, inflation had plunged to 118% — a drop of 44.5 percentage points in just one year.
The decline continued. By March 2025, annual inflation had fallen to 55.9%. Projections suggest it could dip below 30% before the year ends.
To attract foreign investment, his government introduced the RIGI regime — a landmark policy that offers 30 years of fiscal and regulatory stability, tax cuts, and trade incentives for large-scale projects (above $200 million). The framework protects investors against adverse policy shifts and guarantees compensation if these protections are violated.
By February 2025, the results were beginning to show. At least 10 energy projects worth a combined $11.593 billion had been submitted under the new regime. In mining, six projects totaling nearly $15 billion were in the pipeline.
In April, Milei secured a $20 billion loan from the IMF to support his market-oriented reforms and the dismantling of years of currency and capital controls.
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