Javier Milei’s shock therapy policies push Argentina into a new recession

By Tim Wallace

Argentina fell into recession during the first quarter of the year amid Javier Milei’s push to overhaul the economy.
Drastic cuts to public spending led to Argentina’s GDP falling by 2.6% from January to March, which came after a 2.5% drop in the final three months of 2023.

Argentina President avier Milei

This represents two successive quarters of negative growth, meeting the official definition of a recession.

Since he was elected president last year Milei has sought to radically reshape the country’s troubled economy.

As a result of repeated bailouts Argentina is far and away the biggest debtor to the International Monetary Fund, while the country has also been hammered by runaway inflation.

Milei’s initial raft of shock therapy measures included devaluing the peso in December, as he slashed its official worth against the dollar by 50%.

He also called a halt to public infrastructure projects and cut the value of pensions and public sector wages, as he sought to stabilize the country’s finances and bring down price rises.

Annual inflation in Argentina is currently at 276%, although the monthly rate of growth slowed to 4.2% between April and May.

This was the fifth consecutive monthly slowdown and way below the 25pc growth rate recorded in December.

Harsh austerity measures led to Argentina’s unemployment rate rising from 5.7% in the final quarter of 2023, to 7.7% in the opening months of this year, the highest level since 2021.

Consumer spending also dropped by 6.7% on the year, while investment collapsed by almost 25%.

Sergio Armella, an economist at Goldman Sachs, said Milei’s economic shocks are necessary and will hopefully spur stronger growth later this year.

He said: “The large but needed exchange rate depreciation, the upward adjustment of overdue regulated prices, as well as the subsequent rise in inflation, coupled with a significant fiscal adjustment, were significant drags on growth.

“If not for a much better harvest, unlike the poor agricultural production of 2023, we would expect the adjustment to deepen in the second quarter. Looking further into the year, as inflation moderates, positive real wage growth could provide some support for consumption and activity in the second half of the year.”
________________

Credit: The Telegraph