Argentina’s Economic Overhaul

Authored by: Joshua Mann and Manuel Carvalho

The Argentine President Javier Milei, appointed on the 10th of December 2023, is causing massive shifts in the Argentine economy. A hard-line libertarian and advocate for a free-market economy, Milei promised Argentina a decrease from 2023’s highest global inflation rate.

As part of the administrations push for austerity to tackle Argentina’s historically high inflation, Argentina’s poverty rate has risen to 52.9% ; the worst in two decades. This rise can be attributed to the cuts in government spending as well as the hyper-inflation that has plagued the Argentine economy throughout history and has been especially fierce over the last 18 months.?

Economists point to quantitative easing measures by the former government as a cause for the increasing inflation, but Milei’s ruthless commitment to austerity has begun to show promising signs. Following his appointment as President, consumer price inflation first rose but has now started to fall, decreasing from 300% in April 2023 to 209% in September of this year (Trading Economics). Although this has resulted in a 4.16% decrease in real GDP and 3.02% increase in unemployment rate, the Argentinian Merval Index has grown 84.42% since the start of 2024 (CapitalQ).

A recent development in Milei’s agenda is his effort to privatize Argentina's state-run airline, Aerolíneas Argentinas, in line with his libertarian advocacy for reducing government spending. This proposal has become a key focal point in the country’s economic restructuring, as Milei faces off with unions demanding higher wages amid eroded purchasing power due to inflation. The impact of privatising Aerolíneas Argentinas is currently unclear, but Chile’s airline giant LATAM could benefit from this ideological push by Milei, as they could look to re-enter the Argentinian market for the first time since 2020, with promises of more stability. Milei has described the ongoing subsidy for the airline as unsustainable, and one of his main policy goals is to eliminate this in an effort to reduce budget deficit.

The full impact of president Milei’s policies remain uncertain, with new developments arriving daily. Whilst they have shown initial promise, by reducing inflation and creating a financial sector that has outperformed many others, they have come with a large social cost; poverty levels soaring and unemployment beginning to rise.

Short-term, Argentina remains an unattractive destination for investors, as real-GDP continues to fall, contracting by 1.7% in Q2 2024 as Milei’s budget cut policies continue to be implemented. However, the deregulation of the economy creates a promising opportunity to invest in companies like LATAM , which stand to benefit from these changes and attract renewed foreign interest. Milei is committed to make Argentina a market-friendly economy and an attractive destination for foreign investors over the long term, indicating promising future investment opportunities (US DoS).

For investors bullish on Argentina's long-term economic growth under these reforms, it might be worth exploring ETFs like the Global X MSCI Argentina ETF (ARGT). This fund offers access to a broad basket of Argentine securities, providing targeted exposure to the country's potential resurgence through increased foreign investment and economic stabilization. Coincidentally it was also the highest-performing single-country equity ETF globally in 2023, with returns of 53%.

Disclaimer!

Please be advised that EUTIC does not provide formal investment advice and is not a licensed financial adviser. The content we produce is intended solely for educational purposes, aimed at individuals interested in markets and economic trends. Any information provided should not be construed as financial advice or a recommendation for any particular investment strategy.

Ciara Nugent. “Argentina’s poverty rate soars above 50% under Javier Milei” @FinancialTimes, 2018, https://www.ft.com/content/ccaeb4f5-6818-4aec-8112-cbf3639ad557 . Accessed 20 Oct. 2024.

Ciara Nugent. “Javier Milei goes to war with Argentina’s airline unions” @FinancialTimes, 2018, www.ft.com/content/f1145ea5-e1db-4ce5-93cc-bb262ad7a32d . Accessed 7 Oct. 2024.

Otaola, Jorge, and Walter Bianchi. “Argentina Cuts Rates Again as Inflation Crests near 300%.” Reuters, 14 May 2024 ,www.reuters.com/world/americas/argentina-inflation-nears-300-climb-prices-slows-bit-2024-05-14/ . Accessed 7 Oct. 2024.

Trading Economics. “Argentina Inflation Rate.” Tradingeconomics.com , TRADING ECONOMICS, 2023, tradingeconomics.com/argentina/inflation-cpi . Accessed 17 Oct. 2024.

?“U.S. Department of State – Home.” United States Department of State, 15 Oct. 2024, state.gov/reports/2024-investment-climate-statements/argentina/. Accessed 17 Oct. 2024.

Spglobal.com , MI, 2024, www.capitaliq.spglobal.com/web/client#country/countryProfile?keycountry=AR . Accessed 16 Oct. 2024.