Dramatic Situation and Drastic Measures
Javier Milei assumed the presidency of Argentina during one of the country’s worst economic crises in history. From day one, he declared war on inflation and implemented drastic measures to restore budgetary balance. According to Gerardo della Paolera, an Argentine economist, the effects of these policies had already begun to show results in the first half of last year. His lecture at Corvinus University also provided insights into Argentina’s potential economic outlook for 2025.
One of Argentina’s most renowned economists, Gerardo della Paolera, was a guest speaker at the Hungarian Academy of Sciences‘ Economic Science Committee meeting, held at Corvinus University on February 18. In his lecture, he examined Argentina’s economic crisis and Javier Milei’s economic policies since his election as president in late 2023. His comprehensive and highly illustrative presentation provided a clear picture of how a country that was once considered an economic success story in the first half of the 20th century fell into a seemingly hopeless situation, the attempts made to counter negative trends, and the effects of Milei’s drastic economic reforms.
Gerardo della Paolera’s lecture revealed unexpected facts about Argentina’s economic history. Until the mid-1930s, Argentina had one of the world’s most stable national currencies, and as late as 1960, its GDP per capita was 2.5 times that of Spain, with an overall GDP comparable to Italy’s. However, as the Universidad Torcuato Di Tella (UTDT) economist put it, Argentina then endured 60 years of economic disaster. The real exchange rate fluctuated wildly, inflation skyrocketed, and by the 1990s, the financial system had collapsed. The national currency, the peso, lost its significance, and even domestically, the U.S. dollar replaced it as the primary currency.
To address this crisis, Argentina introduced the Convertibility Law, pegging the peso to the dollar and implementing market-friendly measures. Initially, this strategy worked—inflation decreased, and the real economy strengthened—but by 2001, the system collapsed. The following decades were marked by high inflation and isolation from international capital markets, culminating in a $57 billion IMF loan in 2018, which was necessary to prevent total economic collapse. The COVID-19 pandemic further hindered recovery, leaving Argentina battling both inflation and economic contraction simultaneously.
Javier Milei emerged in this dire economic landscape, advocating radical reforms that disrupted the status quo. According to Gerardo della Paolera, Milei explained his economic transformation plans in a simple, accessible manner, effectively declaring war on inflation, which he referred to as “theft.”
Upon taking office, he implemented bold fiscal measures, including:
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Aligning the regulated and free-market exchange rates of the peso
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Reducing government spending by 30%
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Cutting investment spending by 80%
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Reducing subsidies for utilities and transportation by 39%
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Cutting public sector wages by 19%
Although revenues also declined, the reduction in expenditures was greater, leading to a balanced budget within the first five months of 2024. As a result, inflation, which had previously reached 18% per month, plummeted to 2.5%, and by the last quarter of 2023, monthly inflation was down to 0.5%.
According to the UTDT professor, Argentina is expected to experience an economic rebound in 2025, with GDP growth potentially reaching 5%, a rate that could be sustained until 2027. In January and February of this year, the national budget even showed a surplus, which, along with the declining inflation rate, suggests positive momentum.
However, foreign investors remain cautious, waiting to see whether Milei’s policies will deliver long-term stability. This uncertainty continues to be a challenge, and as Gerardo della Paolera noted, rebuilding the Argentine Central Bank’s reserves will require a new agreement with the IMF.
Gerardo della Paolera
One of Argentina’s leading economists, Gerardo della Paolera, earned his degree in economics from the Catholic University of Argentina and later obtained his PhD from the University of Chicago. He was the founding rector of Universidad Torcuato Di Tella (UTDT) from 1991 to 2001 and remains an economics professor at the institution. He has also served as a visiting professor at numerous universities, including Central European University (CEU) in Budapest.
Currently, he is the Executive Director of the Bunge & Born Foundation. He has published extensively in international economic journals and is a co-author of “Training at The Anchor: The Argentine Currency Board and the Search for Macroeconomic Stability“ and a co-editor of “A New Economic History of Argentina.”