It’s almost exactly one year since Javier Milei took office as President of Argentina. Given his tendency to wield a chainsaw and make controversial statements, combined with his unruly hair and the fact that he is on the Right, he was derided by many commentators who likened him to an Argentinian Trump and predicted economic ruin for his country. In reality, the past 12 months have demonstrated that while Milei’s policies have been radical and controversial, they are starting to work. Indeed, rather than being dismissed, his approach to policymaking should be emulated by governments around the world, including in the UK and the incoming administration in the US.
The key problem plaguing Argentina’s economy when Milei became president was inflation. This was an issue for many countries at the time, but in Argentina it was incredibly high. Recent experience has made the problems with even moderately high inflation all-too-familiar. It drives up the cost of living as wages fail to keep up with prices, plunging households into poverty, and it is the most vulnerable who suffer the most. Inflation is also bad news for firms, as it increases the cost of doing business. Firms then have little choice but to let workers go and put prices up even higher. All this also causes further damage to the public finances, as unemployment and firms going out of business means lower tax revenues. When coupled with high inflation eroding investor confidence and driving up borrowing costs, this means that governments have little choice but to print more money in order to finance public spending. This creates a vicious cycle, leading to higher inflation, more economic damage and even more misery for the people.
As such, tackling the high rate of inflation was rightly Milei’s number-one priority. Given that inflation has started to reach more normal levels, he has been successful. What’s more, the way he has gone about lowering inflation is important. Many commentators and policymakers blamed the high inflation faced by countries around the world on shocks such as Putin’s illegal invasion of Ukraine and supply chain problems caused by Covid. While these certainly did contribute to inflation, policymakers had forgotten or ignored the teachings of Milton Friedman: inflation is always and everywhere a monetary phenomenon. Milei’s government has responded by cutting public spending and stopping the printing of money. Inflation has dropped dramatically as a result.
The way that Milei has cut public spending is also a helpful lesson for other world leaders. He has done this by completely abolishing several government departments. This is something which appears to be on President Trump’s agenda, and which the UK should also consider. Government should focus on doing fewer things and doing them really well. It should launch a review of its functions in order to eliminate wasteful public spending and reduce the burden on taxpayers.
Milei has also taken a tough stance on Argentina’s state pension, by vetoing a bill designed to increase it. While it is obviously important to provide a safety net for the elderly, Milei is right to point out that state pensions can be incredibly expensive. This is certainly true in the UK, due to the ‘triple lock’, which sees current taxpayers footing the bill for very generous state pension increases every year. Abolishing the triple lock so that the state pension only increases in line with inflation would be incredibly unpopular, but it would be the right thing to do and would help to balance out some of the intergenerational inequality in the UK.
Milei’s government has also been bold on housing reform. The previous Argentine government introduced legislation which was designed to protect tenants by mandating that rents could only be priced in pesos rather than dollars, extending the minimum lease term from two to three years and mandating annual rent adjustments based on an average of inflation and nominal wage indices. Although this move was well intentioned, it had disastrous consequences for the rental market. Landlords either increased initial rents on new leases or simply pulled their properties from the market. This led to a shortage of housing, which meant rents increased and it created a black market for rental properties. Milei repealed this legislation, and rental unit supply quickly increased by over 170% while rental prices dropped dramatically.
This should serve as a warning to the UK Government, which increasingly seems to want to add even more regulations to the rental market, while campaigners and some politicians are even calling for the introduction of rent controls. The truth is, there are already so many regulations about what can be built, and where, that the UK rental market does not resemble a market at all, especially in the capital. As a result, supply has not kept up with demand, forcing young people to spend more and more of their income on rent (if they’re fortunate enough to even find a flat or a room). We need far less regulation in the rental market, and the Government also needs to liberalise the planning system so that millions of new homes can be built in and around our major cities. This is the only way to bring rental prices down and protect tenants from slum landlords.
Finally, Milei has promised to abolish all tariffs on goods imported by Argentina. He is absolutely right to point out that tariffs are taxes. They increase costs for businesses which are then passed onto consumers in the form of higher prices. They shield domestic firms from foreign competition, making them less productive, and they tend to lead to trade wars, which end up harming domestic firms and placing jobs in jeopardy.
Milei is right to welcome imports: they give businesses and consumers greater choice and access to cheaper goods and they force firms to be more productive, which in turn leads to economic growth. This is probably the key lesson the rest of the world should learn. The US and many other nations are becoming increasingly protectionist, and things look set to get even worse due to the re-election of Donald Trump (another reason why the comparison of Milei to Trump is unfair). The UK should follow the example of Milei and resist the temptation to embrace protectionism and instead encourage the US and the EU to go for greater trade liberalisation.
Milei has obviously not got everything right and we are still only one year into his presidency. Argentina’s poverty rate is unacceptably high, and so he should implement measures to alleviate this. This is not only the right thing to do, but ensuring that there is a true safety net for those who lose their jobs will be key to gaining widespread support for his reforms. Moreover, although he has introduced a form of currency competition, he should follow through on his election pledge of dollarisation.
Despite this, things are looking up for Argentina’s economy. A return to sound money, deregulation and free trade have helped to tackle high inflation and boost economic growth. The UK Government would do well to follow Milei’s example.
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