press release
Published: 16 December 2024

Javier Milei's economic impact and investor confidence in Argentina

Below is an expert comment from Professor Juan Carluccio about Javier Milei's first year as Argentina's Prime Minister. Professor Carluccio argues that there are green shoots in the somewhat controversial PM's plans, but investors are still looking at Argentina with caution. 

Javier Milei has implemented a wide-ranging austerity program, and its effects are becoming visible. Monthly inflation rates are declining, the exchange rate is stable, and the gap between official and parallel rates is at its lowest level in years. The risk premium on Argentine sovereign debt has also dropped significantly, from around 2,200 basis points to about 750. Despite a small group of MPs and a divided opposition, Milei has managed to assert himself in Parliament and avoid a major economic crisis.

However, this progress marks only the first phase of his plan. Investors remain cautious due to ongoing uncertainties. While monthly inflation is falling, annual inflation is still high at 118.8%. The slower pace of devaluation compared to inflation has kept the real exchange rate low, making Argentine goods expensive and hurting competitiveness. Low Central Bank reserves and persistent foreign currency drains from imports and tourism add to the challenges.

The current exchange rate stability heavily relies on strict capital controls and foreign exchange restrictions, known as the 'cepo.' While maintaining these controls has been necessary, they constrain economic growth and discourage foreign investment. Multinational companies, for example, cannot repatriate dividends. Meaningful investment will likely follow the lifting of these restrictions, provided the broader economic and political situation stabilises.

Looking ahead, much depends on Milei's ability to sustain progress, maintain alliances, and navigate the upcoming midterm elections in October 2025. If he approaches those elections with lower inflation, economic growth, and public support, he could solidify his position and inspire greater confidence among investors. Professor Juan Carluccio, Professor in International Trade

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Juan Carluccio

Prof Juan Carluccio

Professor in International Trade

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