The Argentinian peso has been devalued by 50 percent overnight. Controls on exports have been scrapped, and the country’s ministry of culture is to be closed down. The health, labor, social development and education departments are also facing the chop. Argentina’s president Javier Milei — who vowed to deliver economic “shock treatment” in his first speech on Sunday after formally taking office — has started a radical overhaul of the economy and begun what is by far the most interesting experiment in economics in the world right now.
True, Milei may not have gone as far as some people might have expected. The plan to replace the peso completely with the American dollar has been shelved for now. So far, at least, the central bank has not been abolished, although given that it is currently presiding over an inflation rate of 140 percent it could hardly complain if it was. By any normal standards, Milei is taking an axe — if not a chainsaw — to Argentina’s bloated state apparatus.
Milei is right to be bold. The currency markets, which will be by far his greatest point of vulnerability, can’t attack him. He has already trashed the currency, with a huge devaluation, and it was significant that the impeccably centrist International Monetary Fund quickly put out a statement supporting the move. Milei knows that the only time he can make deep cuts in public spending is right at the start of his term, when momentum is with him. Indeed, by abolishing ministries wholesale instead of trying to reform them, Milei may well have provided a template for other governments that win power on a free market platform.
The plan is high risk, and may well combust within weeks. It is Argentina, after all, a country that has specialized in economic chaos for more than a century. But if president Milei can control inflation, and unleash exports of agricultural products, and bring energy on stream, it could just work. Additionally, if wheat and maize prices rise, the country will soon have plenty of dollar earnings. Meanwhile Argentina holds 21 percent of the world’s lithium supplies, crucial for batteries, and production is just starting to be stepped up. Its huge reserves of shale oil and gas are beginning to come on stream too, and could soon turn the country into a major energy exporter. With a little luck, Milei’s boldness could well pay off. And if it does, it will change the economic debate globally — by demonstrating there is an alternative to an ever expanding, activist state.
This article was originally published on The Spectator’s UK website.