President Javier Milei passed his first great test in 2024: he proved that he could govern. He avoided impeachment and hyperinflation, reduced price indexes, and controlled social conflict, despite carrying out sweeping austerity measures. 

In his second year, he will have to achieve a second goal: consolidate his project and build the necessary trust to make his project sustainable over time. 

For that to happen, he will have to string together a series of achievements which, a priori, appear to be challenging. On the economic front, maintaining fiscal discipline, improving the economy, lowering poverty, continuing with disinflation, and avoiding problems with the exchange rate will be required, among other things. Members of President Milei’s inner circle say there is no doubt that fiscal discipline, a key anchor of the economic stabilization program, will be maintained at all costs.

No less important, the government will look to obtain convincing results in the mid-term elections to confirm popular support for its measures. With more political capital, it plans to implement more of the structural reforms that the president has on his agenda.

The Milei administration kicks off the year facing several risks. Some of these are under its control, but others are not. The latter include the weather, a key factor due to its impact on harvests. Although it is always an element of uncertainty in Argentina, conditions have fortunately been favorable so far. There is also the possibility of turbulence in international financial markets. In principle, homegrown dangers cannot be ruled out either, such as possible tensions in the foreign exchange market, which are not unusual in the run-up to elections.

Trust

Milei finds himself in a position of strength. The administration maintains high levels of approval due to the drop in the inflation rate and the recovery of economic activity.

The Government Confidence Index conducted by Universidad di Tella in December 2024 reached 2.66 points, which equates to a 53.2% approval rate.

Confidence in the government, which has been stable through Milei’s first 12 months in office, remains above 50%. These numbers are on par with those of Néstor Kirchner and surpass each of the presidents that followed him.

Expectations are similarly encouraging. According to a recent survey carried out by consulting firm Synopsis, 46% of respondents think that the country’s economy will be better in a year compared to 41% who think it will be worse. Meanwhile, 43% say their personal situation will improve against 37% who report the opposite.

It should be noted that public opinion is the government’s greatest asset, since it took office with minimal legislative and no gubernatorial support.  

Credibility

In addition to its popularity with the general public, the government has also seen its economic policy gain credibility with market players. This is evident in indicators such as country risk, which is already close to 600 basis points, and the progressive reduction in inflation several economic analysts have projected for the coming months.

Fiscal balance

The president has said that fiscal balance is the cornerstone of his economic policy, and the most difficult adjustments to National Treasury accounts were made in 2024.

As of last November, data showed that the Treasury had achieved a primary surplus equivalent to 2.1% of GDP and a financial surplus of 0.6%. This amounts to an unprecedented adjustment of almost 5 points compared to the fiscal situation they inherited.

Some may argue that austerity policies will have to be reviewed — capital expenditures, for instance, have been falling by more than 70% year-on-year. In any case, the president himself has stated that fiscal discipline will be maintained and that policy expenditures will continue to be reduced. Likewise, the intention to privatize, offer concessions, or shut down an estimated 140 state-owned companies will move forward. 

At a time when public spending remains tight and monetary issuance controlled, most economists agree that:

• Inflation will continue to decline. It should be taken into account that most of the relative price adjustment was made during 2024.

• Regarding utilities, private calculations make the following estimation. Taking a base index value of 100 for 2020, the cost of public services during the most critical period of the Alberto Fernández administration was at 60. Currently, that figure stands at 87. This means that full recovery is close, and future raises should not have a major impact on prices. 

• Forecasts put inflation at around 28%. According to a draft budget submitted by the executive branch, the official expectation is that the number will be around 18.3%.

• Purchasing power is expected to recover due to lower inflation. Although they are at historically low levels, salaries could increase by as much as 11%, according to Ecolatina’s projections.

Growth

The economy will expand by activating more sectors. The latest available data, which reflect the third quarter of 2024, show that GDP fell 3% (year-on-year) but that industries were impacted very differently. Non-urban activities rose 25.9% (agriculture, energy, mining), while urban activities (construction, industry, commerce) fell 5.9%, according to calculations by economist Martín Polo.

Recovery this year will be broader, as purchasing power and the expansion of credit lines are expected to grow. Albeit a small sample size, loans were growing at almost 50% year-on-year in real terms by the end of 2024 . 

If larger harvests and greater energy sales abroad materialize as expected, then exports are projected to reach US$83 billion. 

Further benefits are expected in the form of investments via the RIGI large investment regime. In fact, the recovery of the economy started in the second part of last year. It is estimated that GDP will grow 2% merely by “statistical drag.” Private analysts believe we could see an increase of 3% or more. The official forecast is even more optimistic, predicting growth of at least 5%.

Exchange rate

Most analysts say that the biggest source of uncertainty is the exchange rate. The authorities implemented a crawling peg regime of 2% monthly increase (set to be reduced to 1% soon) which implied an appreciation of the peso.

The real exchange rate is close to levels registered in 2015 and 2018, two moments that were followed by an abrupt correction. 

The situation is complicated by the weakening currency in Argentina’s main trading partner Brazil (the exchange rate went from less than 5 reais per U.S. dollar at the end of 2023 to more than 6 reais at present).

International commodity prices have fallen, too: soybeans, for example, have fallen by around US$120 per tonne in less than a year, to US$360 per tonne. With negative net reserves of around US$8 billion, according to private estimates, the situation is risky.

IMF

President Milei has personally denied that the peso is overvalued. Given the economic recovery, the external commitments to be faced throughout the year — close to US$13 billion according to Ecolatina — and the fact that a new deal with the International Monetary Fund is expected in the first months of 2025, it is likely that the government will have enough foreign currency resources to maintain its exchange rate policy and release the currency controls known as the cepo. 

Competitiveness 

Economists linked to the industrial realm point to problems that spring from the growing competitiveness of imports.

To mention just one challenge for the productive sector, Argentina is among the three countries with the highest tax pressure on the formal sector, according to a country review by the business school of the International Institute for Management Development (IMD). The government has no immediate plans to lower taxes: the Treasury’s 2025 budget proposal envisaged a 0.55 percentage point increase in tax pressure compared to last year.

Businessman Roberto Rocca (Techint) has said that, in order to compete, it is necessary to “level the playing field.” Otherwise, several sectors could face production problems that impact employment, particularly in Greater Buenos Aires. That could be an important issue in light of the upcoming midterm elections.

State reforms

The government has already said that, despite it being an electoral year, it intends to keep pushing bills to simplify taxation, cutting the number of taxes to 5 or 6 at most. It also plans to reform labor laws, pass political reforms, press on with privatizations, cut the State, deregulate further, and pass pension reforms, among other initiatives.

The insistence on labor reform comes with a view to expanding the labor market from 6.5 million to 14.5 million people, the president has said, because this way “the pension numbers change dramatically in favor of retirees having better pensions.”

Pension reform will be subject to the passing of a labor reform. The government estimates that these initiatives can probably be achieved after the legislative elections.

Elections

La Libertad Avanza’s political strategists are confident that the economic recovery, together with improvements in public order — for instance, the end of protests that block roads — will be decisive factors to achieve a favorable electoral result in the 2025 midterms.

Although they have not said so explicitly, more than one political consultant considers it evident that the ruling party is looking to absorb parts of PRO and UCR and confront Peronism, particularly Cristina Fernández de Kirchner.

There are those who believe this is a risky bet. They point out that Mauricio Macri tried this tactic, only for it to end with the return of Kirchnerism in 2020.

Although La Libertad Avanza would remain a minority in Congress even with a good electoral performance, popular backing at the ballot is necessary to continue with structural reforms.