Inflation, Reforms and Protests The First Months of Javier Milei’s Government in Argentina

by Sarah Ferreira

On January 22, the National Institute of Statistics and Census (INDEC) officially declared Argentina the country with the highest inflation rate in the world, with an annual increase in prices of 211.4%, overtaking Lebanon, which ended the year in second place with 192.3%. This is not a unique chapter in the history of Argentina which has suffered from serious economic crises and recessions throughout most of its recent history. Inflation, in particular, has considerably increased the cost of living for the population and driven millions of people into poverty. 

Experts believe that the country's current economic situation is the result of chronic issues. They argue that the problems that Argentina is struggling with, such as inflation, dollar shortages, and high government debt, have their origins in misguided policies of previous governments. For example, in the 90s, then President Carlos Menem implemented a parity exchange rate with the dollar – meaning that the Argentinian peso and the American dollar were equal in value. In the short term, this resulted in immediate growth due to the containment of inflation, since the fixed value of the currency helped control exchange rate uncertainty and limited the printing of coins to pay for public spending, a measure that tends to drive up prices. But in the long term, Menem's economic plan led to a currency crisis in the following decade, caused by a shortage of dollars, mainly due to a lack of foreign investment.

The parity exchange rate was responsible for promoting an economic culture of strong dependence on the American currency, since, in order for it to work, there had to be an equivalent amount of dollars and Argentinian pesos in circulation. This also meant greater influence for the American currency in various economic activities. Thus, when a series of external shocks hit emerging countries such as Mexico, Russia, etc, in the late 1990s and caused a flight of foreign capital, these economies, including Argentina’s, collapsed.

Another cause for the current crisis is Argentina's huge public and foreign debts. The former is the result of several years of populist policies by Peronist¹ governments, which led to a huge increase in inflation as Argentine pesos were printed to pay off public debts. In the Peronist governments of Néstor and Cristina Kirchner, for example, priority was given to income distribution policies, such as increases in real wages, the distribution of subsidies to low-income families, and the granting of pensions to informal workers without social security contributions. More recently, the previous president, Alberto Fernández (in office 2019-2023), also maintained public spending and economic recovery from the pandemic by printing money, which further fueled the inflation.As for the foreign debt, its increase is also linked to the shortage of dollars that resulted from the currency crisis. Without dollars, the government lost its ability to repay its loans and had to resort to successive defaults² , which also damaged the trust of foreign investors, worsening the economic crisis. Additionally, the government had to resort to assistance from the International Monetary Fund multiple times, hence increasing its foreign debt. In 2018, for example, during the government of Mauricio Macri, the IMF lent around 57 billion dollars to Argentina against a promise to use that money for stabilizing the economy and cutting government spending. At the moment, the country is renegotiating its debt with the IMF, as the previous government of Alberto Fernadez failed to meet the organization's debt repayment targets, which were negotiated in 2022.

Obelisco de Buenos Aires located at Plaza de la República, in front of Avenida 9 de Julio. Photo by Nestor Barbitta on Unsplash

The economic issue has also become central to present Argentine politics. For example, in the 2024 presidential elections, solving the economic problem was the main theme for the top candidates, Sergio Massa, Minister of Economy and representative of the Peronist party, and Javier Milei, an outspoken anarcho-capitalist, who became known for criticizing the economic policies of previous governments and for his controversial declarations, such as his defense of legalizing organ selling and carrying weapons, as well as his promise to fully dollarize the economy and close the Central Bank. Both candidates promised to solve Argentina's economic crisis, with Milei ultimately emerging victorious with the promise of change based on a series of radical liberal reforms that are hugely unpopular with a significant part of the public. Since Milei took office on December 10, 2023, he has tried to gather political support to implement them.

At the very beginning of his term, the Argentine president proposed two plans: The first one was presented as a so-called “Decree of Necessity and Urgency” — a tool that presidents can use in emergency situations without congressional approval — which proposed to establish 350 new rules to deregulate the economy. Second, Milei submitted to the Congress for approval the controversial Law of Bases of Starting Points for Argentine Freedom, better known as the “Omnibus Law” . It initially consisted of 664 propositions for change in several areas — economic, fiscal, security, cultural and environmental — with the primary aim of reducing the state's interference, which Milei sees as the source of the economic crisis plaguing the country. Included among the propositions are the privatization of state companies, an increase in taxes on agricultural exports, a pension reform, tougher sentencing for protesters who "violate the use of public services and intimidate people" , as well as tougher sentencing for those who resist security forces. Moreover, the law proposed the extension of executive powers until the end of 2025, with the possibility of further extension until the end of 2027, in “urgent areas” such as economy, taxes, security, and defense. This was considered by many as being unconstitutional and contrary to the “freedom” that the president so much defends.

In light of this, on January 24, 2024, unions called for a general strike to protest against this project. This event, although not unprecedented in the country's history given its economic instability, was carried out at a record 45 days into the government's term. According to official sources, around 130,000 people marched towards Congress to show their dissatisfaction and push lawmakers into rejecting the bill. The Confederación General del Trabajo (General Confederation of Labor, CTG), the main trade union organization responsible for the movement, claims that more than 1.5 million people joined the strike in response to what they saw as the dismantling of the economy.

In response to the demonstrations, however, the government questioned both the general population's support for the strike and the strikers' motivation. For Milei’s government, trade union movements like the CTG were "on the wrong side of history" , opposed to freedom and the working class, and in favor of the Peronist opposition. It should also be noted that restrictive public security measures have been taken to suppress these groups in order to support the progress of Milei's reform package against the backlash of public opinion.

Regarding this, in December last year, Patricia Bullrich, the Minister of Security, declared a protocol for maintaining public order in the face of obstruction of public roads – the “Anti-Picketing Protocol” . Bullrich, who previously held the post in the government of Mauricio Macri (2015-2019) and came in third place in the 2024 presidential race, affirmed the need to enforce the law and allow people to move around in peace, even if this requires the deployment of force, including the possibility of using the Armed Forces; the identification and tougher punishment of protesters violating public order; and sending the bill for security costs to those who organize and incite protests. Furthermore, following the slogan repeated several times by Milei in his presidential campaign, “el que corta, no cobra” ("those who block [the streets] don't get paid"), the Minister of Human Capital, Sandra Pettovelo, threatened to cut social welfare from those who obstruct roads to protest. While there is no doubt that public security measures should be used to curb possible excesses, the original purpose of the Protocol has been questioned by many who view these measures as a way to intimidate opponents rather than promote public order. 

Beyond public opinion, Milei needed to win political support for the approval of his plan. Having appeased other parties in Congress by removing some 300 of the articles from the initial Omnibus Law bill, Milei managed to secure the approval of the majority of representatives in the Chamber of Deputies — the lower house of Argentina’s parliament — on February 2, after 3 days of debate. With the help of the traditional Unión Civil Radical (Radical Civic Union) party and the Propuesta Republicana (Republican Proposal) party, the current president managed to win the majority of the votes and have the the law approved in general terms, that is, in its main guidelines, such as changing the distribution of taxes and the rules for privatizing public companies. The next challenge for the implementation of the Omnibus Law was the article-by-article voting in the lower house so that it could be sent to the senators in the upper house for final approval. But when important articles were rejected, Milei decided to withdraw the bill, which invalidated the initial approval. Currently, if Milei decides to reintroduce the bill, he will have to go through the whole process again.

In the end, the rejection of the Omnibus Law, along with the partial annulment of the Decree of Necessity and Urgency in the Labor Sector by the Supreme Court on January 30 at the request of the CGT, represented a victory for those who protested against it and were repressed with excessive violence by law enforcement. Nevertheless, after this defeat, Milei has reiterated his commitment to restructuring the country, regardless of political support. The possibility of a repetition of the same events, with the use of extreme violence against public reaction, is still present. This only makes us question the direction of Argentine democracy in the name of economic progress.