Argentina cuts central government spending by 40%.
The world's most pro-capitalist, "anti-collectivist" government is just getting started.
In this update:
Milei's "chainsaw" continues to slash the size of the state.
A recent podcast interview I gave about Argentina.
Insights from a recent investment event in Buenos Aires.
Argentine citizens' vast hidden capital resources, at home and abroad. Are we underestimating the country's long-term growth potential?
Vast swathes of the world are straining under the burden of oversized governments, excessive taxation and regulation, and huge public debts. Chances are, you live in one of the afflicted countries.
Argentines know all too well what happens when such policies are inflicted on people for prolonged periods of time. Sooner or later, there are major economic and financial crises, more and more people descend into poverty, and there is general societal decline. From rich to poor in a couple of generations.
Argentine President Javier Milei came to power in December 2023, elected by a populace who were fed up with big government, populist failure, and rampant corruption. The times, at least on the southern bank of the Rio de la Plata, they are a-changing.
Podcast interview about Argentina
In December, I was interviewed about Argentina by Jeremy McKeown, who writes a very interesting newsletter on Substack, called "HyperNormalTimes & In the Company of Mavericks".
I've been waiting for a good moment to highlight this to my readers, and this is it. We talked about how the country got into a mess, how it's digging its way out, why I started to prepare to leave the country in 2023, the huge future growth potential, what risks could send it off track again, and how various investments are performing since Milei came to power (real estate, stocks and bonds).
For those interested, click on this link to listen to the discussion. It lasts a little under 50 minutes in all.
And don't forget to check out Jeremy's writings.
Surprise! (For some.) Deep spending cuts and economic growth aren't incompatible.
Milei variously self-describes himself as a "minarchist" (believer in minimum government), "liberal libertarian" (freedom lover), "mole within the state" (destroying it from the inside), and "anti-collectivist" (against all forms of big-state government, including socialism, communism, fascism and globalism).
Meanwhile, ignorant mainstream media journalists, and other blinkered establishment types, often still insist on describing Milei as "far right" or "hard right". He is the opposite. At least, I've yet to see platoons of "black shirts" in jackboots marching around Buenos Aires. I'll let you know if that changes. (It won't.)
Milei is weaning the state off his people, and his people off the state. As of today, Argentina undoubtedly has the most pro-capitalist government in the world. Although there are still vast reforms needed before the same can be said about the country and its economy.
Milei's long-term aim, stated repeatedly, is to make Argentina the freest country in the world. Although it's been a good start, getting to the end goal is very much a work-in-progress.
What happens is important to me, since I've lived in Buenos Aires for over sixteen years, and witnessed much of the economic madness first hand. Destructive trade tariffs, capital controls, constantly changing (and often bonkers) taxes and regulations, vast money printing, financial repression, rampant corruption, anti-job employment laws, price controls, and all the rest of it.
Freed of such nonsense, the potential for this resource-rich country is huge. On a personal level, I want my kids to have excellent opportunities here when they leave university in a few years' time. Otherwise they, and a great many of their generation, are unlikely to stick around.
Even stagnant Europe looked enticing to Argentines when inflation here was rocketing, salaries were poor, and poverty and crime were getting worse each year. Europe may be expensive, overtaxed and over-regulated. But at least it's reliably and consistently bad, and the ongoing decline is mostly steady and slow. Everything's relative.
Back in Argentina, Milei's first year in office achieved a great deal. Inflation was brought down from a monthly rate of 25.5% in December 2023 to an expected 2% in January 2025.
This is still high by international standards, with about 20% inflation expected over the course of 2025. But it's already a huge improvement, now that the money-printing machines have been sent to the scrap heap of monetary stupidity.
In any case, much of the ongoing inflation still relates to the progressive removal of populist state subsidies on fuel and energy prices. Eventually that factor will drop out of the CPI numbers.
Real wages are now increasing, meaning people have more spending power again. Official poverty statistics have dropped from above 50% of the populace in early 2024 to below 40% now, which is a step in the right direction for a change. The economy is expected to grow around 5% this year (in real terms), and confidence is building.
Argentines can breathe a sigh of relief. The financial emergency has largely been resolved, via deep public spending cuts and a balanced budget ("non-negotiable", per Milei). From now on, the ongoing deregulation and tax cuts are set to free up the economy to grow, and potentially boom over the coming years.
This is not to say there aren't still huge challenges. There's a lot of government debt interest to pay, debts that are due to mature soon, and currency and capital controls are still present in many areas of the economy. From restrictions on exchanging pesos into dollars, to unfavourable (non-market) exchange rates imposed on exporters, to huge import and export tariffs. But things are heading down the right track, at last.
Last year, Milei and his team vigorously began the process of taming hugely inefficient, corrupt, and bloated federal public spending. This was the "chainsaw" that he promised to voters, and wielded symbolically at campaign rallies.
In real terms - accounting for inflation - spending on government departments was slashed by 24.5% during 2024.
Wow. Talk about over delivering.
Okay, for avoidance of doubt, this mostly relates to the bureaucracy that administers the state. The bulk of government spending is on welfare payments (state pensions and subsidies to feed and house the poorest citizens).
Such payments have to remain in place for now, both for moral reasons (so the poor don't starve) and to keep the peace (history tells us that hungry people start revolutions). But the delivery of such programmes, and much more besides, can be done far more efficiently than before - and with far less skimmed off by the corrupt "casta", or establishment caste.
Many pointless departments and agencies were closed completely. Many ministries and departments were merged and reduced in size. Programmes abandoned (wokery was booted out, in particular), employment contracts not renewed at expiry, corrupt schemes audited and incinerated.
To slash central government spending by a quarter already sounds impressive. Most politicians and civil service bureaucrats in other countries claim it's impossible to trim spending by even a few percent. But it's just a matter of mindset, determination and the right leadership.
Which is why Milei is doubling down. The recently submitted budget for 2025 indicates a further spending reduction of 21.6%, in real terms, compared with 2024's already-trimmed level.
By my reckoning, combining the actual cuts achieved in 2024 with the budgeted cuts in 2025 would give a combined, real-terms spending cut of 40%.
In just two years!
That is truly phenomenal. And I suspect there will be yet more to come in 2026 and beyond.
The Ministry of the Economy is leading by example, with a planned real-terms spending cut of nearly 27% in 2025. The following chart shows how these deep cuts are expected pretty much across the board of the different ministries. (It's in Spanish, but you should get the idea.)
Milei's "chainsaw" remains very busy cutting back the dead wood of government. Vroom! Vroom!
Other recent developments
In a minute, I’ll get into some insights gleaned from a recent investment event here in Buenos Aires, attended by foreign hedge funds and other professional investment firms (largely from the US).
First, here is a selection of some other recent developments in Argentina, so you get a flavour of what else is going on: