Javier Milei’s Ambitious Fiscal Agenda: Aiming for Economic Transformation in Argentina

Javier Milei often emphasizes his intention to make substantial cuts in public spending as part of an ambitious austerity program aimed at addressing Argentina’s persistent budget deficits. His primary focus in this fiscal tightening plan lies in reducing expenditures on utility bill subsidies, such as those for gas, electricity, and water. Additionally, transfers from the federal government to impoverished provinces would face reductions, according to sources familiar with the campaign’s economic strategy.

While Wall Street investors might welcome Argentina’s efforts to balance the government’s budget, skeptics question whether the 52-year-old economist can achieve such significant results within a short timeframe. Previous austerity initiatives, including one in 2019, led the economy into further recession as subsidy cuts contributed to inflation, eroding consumer purchasing power, and increasing unemployment.

A crucial aspect of Milei’s budget proposal involves reducing overall spending on family social subsidies nationwide while targeting low-income households with genuine needs. However, the technical challenges of implementing this approach are significant. President Alberto Fernández’s government has long promised to eliminate subsidies for the wealthy but has struggled to do so effectively.

Milei has discussed the possibility of cutting spending equivalent to 15% of Argentina’s GDP, but current estimates hover around 14%, with the figure evolving as plans are refined. Regardless, this would constitute one of Argentina’s most ambitious austerity programs to date.

Milei’s proposed spending cuts, if he wins the presidential election on October 22 and assumes office on December 10, are as follows:

1. Reduce federal government transfers to provinces by 5% of GDP.
2. Eliminate 2% of GDP through privatizing public works.
3. Adjust 5% of GDP by restructuring the subsidy program to target households in genuine need rather than businesses.
4. Eliminate 1% of GDP by ending special retirement packages for high-ranking government officials.
5. Reduce 1% of GDP by selling or closing unprofitable state-owned companies.

Milei has already identified a list of companies that his administration would consider selling or closing. Among the top candidates are Aerolíneas Argentinas, the state television channel Public TV, the state news agency Telam, the National Radio, and the state energy company Enarsa. Notably, the sale of the state oil company YPF would not occur immediately; Milei’s team would first conduct a comprehensive financial analysis to ensure it could be sold above its current book value, a process that may take more than a year.

Fundamentally, the Central Bank would cease issuing pesos from the first day of a Milei administration. If the official peso exchange rate has not been adjusted by then, the government would devalue it to a level close to the current market rate (parallel dollar) and implement a fixed exchange rate. Milei’s team also plans to introduce legislation in Congress to legalize currency free-floating and may voluntarily propose dollarization.