History for the Books: Javier Milei & Argentina’s Budget

For most of 2023, Javier Milei advocated a number of libertarian policies aimed at reversing Argentina’s long economically downward trend. Among them was a proposal that was noted for its difficulty in a country known for its ever-increasing level of public spending. ‘It can’t be done,’ they said. Yet he did it: Under the presidency of Javier Milei, Argentina just finished 2024 with a balanced budget for the first time in 16 years.

So how was Milei able to end Argentina’s deficit so quickly? First and foremost, it seems like his determination was key to achieving that goal. Milei, an economist, believed that for the country to achieve some sort of stability and credibility it had to send a strong signal that it would cut back on its expenses, which were paid for through inflation. Enough was enough.

Milei’s determination is not the end of the story, though. In fact, the President was aided by a unique institutional feature in Argentina, which is the extension of a given year’s budget if none has been passed for the following year. In that case, the government can simply extend its most recently approved budget. But in a country with a 211% inflation rate in 2023, maintaining allocations nominally translates into drastic real cuts, and Milei took advantage of this to cut public speding by a whooping 25%. With just over 15% of seats in Congress, Milei introduced a budget bill but chose not to negotiate over it in Congress, thus extending the budget from 2023 and turning a major weakness into major strength.

Cutting real spending, though, was not easy nor enjoyable. Public works were frozen. Pensions decreased. Cuts were also applied to public employees, and over 30,000 were fired altogether. All of this caused some social unrest. Protests over university resources were among the most closely watched, as they gathered not just students but also key opposition figures.

So what did balancing the budget achieve? Why was Milei so intent on cutting spending? So far, the payoff for the government’s efforts is considerable. Ending the deficit, as well as the expectation that Milei will continue with this policy in the future, has helped him control inflation, which is down from a monthly 25% rate in December of 2023 to less than 3% in December of 2024. Markets have celebrated this, with Argentina’s stock market delivering the best returns in the world in 2024.

The end of the deficit signals a new era of fiscal responsibility, which is key to stabilizing Argentina and implementing other reforms. Milei knows that an unbalanced budget will bring back inflation. He also attributes the failure of liberalization policies in the 1990s to excessive public spending, which means balancing the budget cannot be a temporary measure. 

Milei’s success in cutting public spending is, when taken into account, historic. In Argentina, there is no prior record of a 25% real spending reduction over the course of one year that does not involve hyperinflation or defaulting on the debt, none of which happened this time. During the past two decades, there was only one other administration that attempted to cut spending (Mauricio Macri, from 2015 to 2019), but in none of its four years was it able to deliver a balanced budget. 

It is hard to recall a time when an Argentine President exerted pressure on his Minister of Finance to cut spending and not the other way around, but Argentines live in such times now. Argentina needed a chainsaw and it certainly got it. Milei is making history.

Marcos Falcone is the Project Manager of Fundación Libertad and a regular contributor to Forbes Argentina. His writing has also appeared in The Washington Post, National Review, and Reason, among others. He is based in Buenos Aires, Argentina.