The question is whether government policies are on course to translate the budget’s premises into anything remotely resembling reality.
On this day in 2001 Adolfo Rodríguez Saá was president, halfway through his single week in the Casa Rosada as Argentina’s third president in the previous seven days and a total of three presidents in the week to come – not the only turbulent December in Argentine history but President Javier Milei is now enjoying an enviable stability by those standards. Not that the road ahead is problem-free with the libertarian government already discovering that the pleasant surprise of October’s convincing midterm triumph was a relative and not an absolute success – not even commanding 100 of the 257 deputies, there are limits to what can be achieved.
What has been achieved is lower house passage of the 2026 Budget (minus its Chapter 11 due to a rash attempt to repeal the emergency for the disabled and university financing laws, which had already been approved twice in the form of initial passage and overriding the presidential vetoes with a two-thirds majority and have now been endorsed for a third time, which should be more than enough) – the question is whether government policies are on course to translate the budget’s premises into anything remotely resembling reality.
These premises include forecasts of 10 percent inflation and five percent growth with current trends running counter in both cases – after four consecutive months of inflation below two percent in the second third of the year, the last third has seen monthly inflation topping two percent by slightly increasing margins while the economy dipped 0.3 percent in October. The latter figure is generally attributed to the acute uncertainties of that electoral month but it might also be considered a price of the recessively high interest rates forming part of the unsustainable policies to hold down inflation in the pre-electoral months.
Towards the end of the year the government has finally recognised the unsustainability of a monetary policy based on a crawling peg devaluation of one percent maintained since February, even after switching to a floating currency between bands. The devaluation is now to be index-linked to the penultimate month (since the previous month’s inflation is unavailable until deep into the next month) with Milei now switching his theoretical focus from the money supply to the demand for money. “We are going to have to buy reserves against the demand for money. If we grow five percent, we’re going to have to buy US$10 billion,” he said in a weekend interview, which should please the International Monetary Fund and others criticising the previous indifference to the accumulation of Central Bank reserves.
But will Argentina grow five percent and if so, would it be compatible with 10 percent inflation? Relaxing the currency bands from the rigid one percent devaluation already carries the risk of more inflation while this year’s experience would seem to show that export-led growth does not suffice to reach five percent (even when assisted by rebound from a negative 2024) – the Kirchnerite experience amply shows that stimulating consumer-led growth carries an inflationary price, even when not using steroids. Milei has promised an inflation of zero-point-something by August but might not an upcreep of inflation due to relaxed currency bands and printing money to buy reserves lead to a new crisis of confidence if continuing well into the next year (as happened to Mauricio Macri six months after his 2017 midterm victory)?
Growth would be an even bigger challenge for an administration pledged to austerity. When it comes to lowering inflation, Milei can at least say “been there, done that” but sustained growth still lies ahead. The current government is frequently compared to the Carlos Menem Presidency in the last decade of the past century (and millennium) but lacks the impressive infrastructural modernisation of that period – denied by a blanket freeze on public works while passing the buck to a private sector yet to show much interest.
Yet no rush to judgement on the second half of the Milei presidency after only a fortnight. The correction of monetary policy shows pragmatism in accepting criticisms scornfully spurned until now although lack of principle is no virtue as such (when naming an accused tax dodger with undeclared properties abroad to head revenue collection, for example) – at the same time the inner circle has shown an unhealthy dogmatism in trying to sneak repeal of the university and disabled laws into the 2026 Budget, a lack of sensitivity and flexibility which almost cost the government the midterms. A government which has yet to define its New Year resolutions.
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