Javier Milei’s, entrance into Argentinian politics was not a quiet affair at all. When the flamboyant and self-described “anarcho-capitalist” took office in December 2023, Argentina was suffering from hyperinflation – ranked at the time as the third highest inflation rate in the world at 211%.
Poverty rate was above 40%, and Argentina’s economy was declining.
Milei’s “shock therapy” plan has certainly introduced pain, with thousands of state jobs cut and various government subsidies were eliminated from the fiscus.
The result however has surprised many who believed that the plan was unworkable, the monthly inflation rate continues to decline alongside a reducing poverty rate and housing supply is on the up. Melei’s plan appears not only to be working but sustainable and he has shown no sign of changing course.
The current 2.3 percent year-on-year economic growth increase has defied expectations of a negative 2-2,5% decline and was projected to have the least economic growth of any country in the world in 2024, according to the International Monetary Fund.
The first half of 2024, saw inflation cooling for five consecutive months, the Associated Press reported in July. Although consumer prices were up 4.6% in June from May 2024, it is far off the 25% percent month-on-month increase seen in December 2023.
The Argentine government saw its first budget surplus in more than a decade in February this year, and just days ago, an economic report was published showing a massive decline in poverty in Argentina. The data suggest that, contrary to what so many people predicted, Argentina may not be slipping deeper into recession following Milei’s shock therapy. Instead, its economy is healing.
What can African States such as Kenya, Nigeria and Uganda, that are facing similar issues, learn from Argentina’s resurgence to prosperity?
Within a backdrop of recent wide-spread protests across Africa, focussed predominantly on the high cost of living and government corruption. Can African Leadership take a lesson from what has been happening in Argentina?
At this juncture, there would seem to be too many African leaders and Financial structures who believe in the Keynesian school of economics, where it is taken as gospel that government spending is the key factor in fuelling economic growth. This is often why some who believe in this financial philosophy argue that even destructive phenomena like corruption and war and natural disasters are good for their economies, because they stimulate government spending which in-turn stimulates economies, and can also stimulate production.
Argentina has however flipped the macroeconomic script in a world in which government spending hikes are deemed a perfect solution in battling recessions. Milei is providing proof that the opposite works by reducing ineffective jobs and cutting government outlays radically.
The Keynesian economic approach fails to account for several significant issues regarding cost. Besides the cost of waste inherent in inefficient government spending, financing the additional spending requires additional taxation, which entails stretching an often over taxed economy and working population. Furthermore, the reduction in output resulting from workers’ reduced incentive to work causes a loss of productivity and kills entrepreneurial endeavors, and reduces the potential of alternative uses of these resources. African countries can learn that despite the immediate downside of less government spend and job losses, there are countless opportunities created by the Milei type of economic reforms, which dismantle the least productive parts of a government inflated economy – its bureaucracy, and provide stimulus for increased sustainable economic growth by reducing the tax burden and encouraging economic activity and investments which in-turn builds up additional revenue earned by the state that can be utilized to stimulate further growth through solid infrastructure investments that support the economy.
Adam Smith once noted that the formula for prosperity is surprisingly simple, and it doesn’t contain government “stimulus”: just “peace, easy taxes, and a tolerable administration of justice.”
