Milei’s Reform Drive: Argentina’s Transformation Gains Momentum / But The President’s Popularity Fades

After the fundamental reform law "Ley Bases" for the "economic liberation of Argentina" came into force in the middle of the year, the reform program of the Milei government has entered a new phase. Equipped with special powers for one year, the government is making full use of these expanded powers to dismantle outdated structures in the administration and renew the country from the ground up. However, Milei's popularity is waning.

A New Phase Of Economic Policy

Since mid-2024, President Javier Milei’s government has ushered in a new stage of economic policy, dubbed "Phase 2." On one hand, the gradual cessation of domestic money issuance is aimed at permanently eradicating inflation, leading to the gradual replacement of the peso with the dollar and other currencies. This “endogenous” process, which is expected to eventually result in the closure of the central bank, was explained by President Milei in early September at the financial experts’ conference (IAEF). Due to the persistent foreign exchange shortage, the restrictions on currency and capital transactions remain in place for now, being eased only gradually.

On the other hand, the pace of deregulation and liberalization of the economy, as well as the reform of the state and administration, has accelerated significantly since midyear. With the passing of the comprehensive reform law "Ley Bases" for the “economic liberation of Argentina” at the end of June 2024, the government secured special powers for one year to overhaul large parts of the country’s economy and administration by decree. The emergency decree 70/2023, issued at the end of 2023, which among other things enabled the easing of Argentina’s rent control laws — recently praised by the Wall Street Journal — also remains in effect.

New Reform Measures Almost Every Day

On this legal basis, Milei's chief reformer Federico Sturzenegger, now Minister "for Deregulation and Transformation of the State", issues new regulations almost daily to reduce state intervention and expand the freedom of companies and individuals. Sturzenegger's credo: It is not about simplifying administrative processes, but rather abolishing them wherever possible. "Anyone who works to modernize the state is just fertilizing the weeds," says Sturzenegger.

In addition to flagship reforms such as deregulating air travel or rental and labor laws, many small individual measures are intended to make life easier for citizens and businesses. Examples include extending the validity of driver's licenses, simplifying the registration or re-registration of vehicles, and facilitating foreign trade by eliminating approval requirements and recognizing foreign inspection certificates for imported goods.

In labor law, in addition to extending probation periods, the category of the self-employed worker with own employees has been introduced, allowing up to three employees to be hired without permanent contracts. Furthermore, an optional regulation of severance pay in the event of dismissal has been introduced, similar to a system already in place in the construction industry, which allows companies and employees to freely agree on severance pay arrangements. In the event of labor disputes, employers can now dismiss employees who participate in strike action such as blockades or factory occupations.

Economic Pain And Growing Poverty

While Argentina's economic recovery is progressing slowly at best, the country’s social situation has worsened further — partly as a result of the reforms. For instance, the liberalization of rental laws has significantly increased the availability of new rentals, but the prices for existing leases have also skyrocketed following the removal of Argentina’s rent control measures. While some Argentinians can now finally find housing, many others are being forced to move because they can no longer afford their current homes. At the same time, fear of job loss and poverty is growing. The poverty rate has reached new record levels — according to official data, more than half of Argentinians are now considered poor, and according to the private consultancy ExQuanti, seven out of ten children live in poverty.

It is therefore hardly surprising that after nine months of drastic austerity and painful reforms, President Milei's popularity has declined significantly, as many polls show. The widely followed Government Trust Index (ICG), compiled monthly by Di Tella University (UTDT), plunged 15 percent in September alone and is now approaching the persistent negative consumer sentiment also tracked by UTDT. Private consumption fell by almost 10 percent in the second quarter of 2024 compared to the same period last year.

The Future: Will Milei Compromise? What If Not?

While Milei continues to maintain his aggressive style in public appearances, behind the scenes the government is becoming increasingly flexible in dealing with potential partners in the moderate parts of the opposition. Despite the extremely weak position of Milei’s ruling party "La Libertad Avanza" in Parliament, the president has managed to forge shifting majorities for his reform initiatives. Recently, Milei also reached to form a “defensive minority” consisting of one-third of Congress members, enabling him to hold the opposition majority at bay. He successfully prevented the Congress from overturning his veto of a pension increase, which would have jeopardized his key goal of fiscal balance.

To Milei's advantage, the debate within the opposition is dominated by former President Cristina Kirchner and her left-leaning Peronist supporters. This allows Milei to continue to drive polarization against the "old politics" that Argentines so strongly rejected in the last election. This polarization could support Milei politically for some time to come. But when the special powers granted until mid-2025 expire, Milei will likely have to reach out more to pro-reform forces in parliament to remain able to govern. More or less pro-market forces command a majority in Argentina's parliament, a majority that could even grow in next year's midterm elections. This is key to understanding Argentina's medium- and long-term prospects: even if Milei misses the right moment for compromise, market-oriented reform policies can continue - even though possibly without Milei himself.

Carl Moses