Argentina’s President Javier Milei: The Success of His Free-Market ‘Shock Therapy’

In a significant move last week, Argentina’s President Javier Milei dissolved the Administración Federal de Ingresos Públicos (AFIP), the country’s largest tax authority. The announcement, made by presidential spokesperson Manuel Adorni, outlined Milei’s intention to replace the AFIP with a leaner agency, resulting in the termination of approximately 3,100 public employees and projected savings of 6.4 billion Argentine pesos (near $6.5 million) for taxpayers. While this restructuring aims to cut down bureaucratic inefficiencies, it also serves as a symbolic gesture in Milei’s broader strategy to reduce government spending and foster institutional liberalization. By overhauling the tax agency, Milei is shifting the narrative from reliance on government bureaucrats to celebrating private entrepreneurs, emphasizing the principle that Argentinians have ownership rights over their property without interference from the state.

Argentina is presently navigating a severe economic crisis reminiscent of its struggles during the 2001 currency collapse, which resulted in a substantial devaluation of the peso and widespread loss of savings among citizens. During that crisis, extensive withdrawal restrictions, termed “el corralito,” severely affected bank customers, igniting massive public discontent and riots. Unlike that crisis, which was marked by problematic monetary policies, Milei faces a more entrenched set of economic challenges. His administration’s capacity to implement reforms aimed at protecting property rights is critical for economic recovery and stability, particularly as the country suffers from high inflation and a heavy public debt burden.

Milei seeks to emulate the historical lessons of successful economic transformations by implementing credible institutional reforms. Drawing upon insights from Nobel laureate economist Douglass North, who spotlighted the significance of credible commitments to property rights, Milei is rigorously cutting back numerous governmental programs that have proliferated under years of Peronist governance. By eliminating 13 government ministries and laying off over 30,000 public employees — about ten percent of the federal workforce — Milei aims to restore fiscal discipline, with early signs of success manifesting in Argentina’s first budget surplus in over a decade and a substantial drop in country risk indicators.

In the context of international case studies, Milei’s strategy resembles previous liberalization efforts, notably in Poland during the late 1980s under Finance Minister Leszek Balcerowicz. This reform agenda contrasts with the struggles faced in Russia during the post-Soviet era, where commitments to property rights were insufficiently upheld, leading to pervasive corruption and market failures. By firmly establishing credible rules that restrict government intervention in the economy, Milei hopes to recreate an environment that fosters competition and economic resilience, much like Poland’s successful transition, which allowed for sustained economic growth over several decades.

Nevertheless, Milei’s administration grapples with acute social challenges, with over half of the population currently living in poverty and unemployment rates hovering at 7.7 percent. The grim reality of food insecurity affects approximately 1.5 million children who miss at least one meal each day. These socioeconomic indicators underscore the urgency of Milei’s reforms and the necessity to maintain public trust in his commitment to liberate the economy from oppressive bureaucratic oversight. He will also need to fortify assurances to the public regarding the continuity of reforms beyond his presidency in order to effectively signal a future of broader economic stability and growth.

While Milei has made substantial strides, including the repeal of rent controls and subsequent boosts in housing supply, he still faces challenges in fulfilling all his election promises, particularly in dollarizing the economy and dismantling existing currency control measures. However, economic forecasts remain optimistic, with GDP expected to grow between five and six percent in the coming year. By dissolving the AFIP, Milei is not merely aiming for administrative efficiency; he is also making a definitive commitment to liberalization by removing tax officials whose past practices hindered entrepreneurial activities. If successfully implemented, Milei’s reform agenda may catalyze a resurgence of economic vitality in Argentina, potentially mirroring the transformative economic growth witnessed in other nations that have embraced similar market-oriented policies.