Reform School

The free market reforms of Argentinian president Javier Milei are enabling that country to pull itself out of precisely the economic mess Australia seems hellbent on creating here, writes IPA Chief Economist Adam Creighton.

The intellectual and one-time French culture minister André Malraux once described Buenos Aires as “the capital of an empire that never was”, after a visit in the 1960s.

Indeed, a visit to the Argentinian capital leaves the unmistakable impression Argentina was an extraordinarily wealthy nation at one time. The capital, the second largest city in South America with a metropolitan area population of around 15 million, rivals the great European capitals for the sheer scale and grandeur of its buildings and public spaces.

The main boulevard, Avenue of the 9th of July, a reference to the day in 1816 the former Spanish colony won independence, is the widest in the world, at three kilometres long and 20 lanes wide, including those designated for buses.

But look a little closer and Argentina’s spectacular economic decline, even in the richest parts of the capital, become evident. Air conditioning isn’t common, much of the beautiful Paris-style residential apartments haven’t been well maintained, and the city’s cars and buses are noticeably dated.

Very little of architectural note has been built since the 1970s, when the nation’s economic collapse accelerated. Property is settled in cash and home loans don’t exist; restaurants often don’t bother printing prices, and ordinary Argentinians remain glued to apps on their phone that track the official and black-market peso-US dollar exchange rates.

But to my Australian eyes it was a cab ride along the Autopista Presidente Arturo Illia, which links the government precinct with the plush northern suburbs of Palermo and Belgrano, that starkly illustrated the grisly human consequences of decades of mismanagement.

Glancing to my left I thought the elevated freeway was avoiding a rubbish tip; on closer inspection, perhaps I was looking at an abandoned shanty town. It turned out I was passing over Barrio Padre Mugica, the most famous slum in Argentina, a concrete jungle that in parts looks like a warzone. Here more than 40,000 people live in poverty on a scale unimaginable in Australia, less than a kilometre from Recoleta, the fanciest suburb of Buenos Aires.

In November I spent two weeks in Argentina to better understand Javier Milei’s extraordinary successes two years into his historic presidency.

The world’s policy elites mocked Milei’s libertarian medicine.

In late 2023 Argentinians turned to the once obscure economist to wrench their country out of the perpetual cycle of sovereign default, hyperinflation and stagnation, on the most extreme free market platform of any political candidate in modern times anywhere. Milei, now 55, promised to take the axe to bureaucracy and regulation, and crush the inflation that had throttled the economy for decades.

It was a program entirely contrary to the Peronist, socialist policies that had seen the resource rich country become a volatile economic basket case, with a GDP per capita around just 30 per cent that of the US. Argentina has defaulted nine times, has had five different currencies, and had five presidents in one year, 2002.

Predictably, the world’s policy elites mocked Milei’s libertarian medicine, but he’s proved them wrong. Within weeks he’d balanced the budget by slashing an internationally unprecedented five percentage points from government spending. Within months inflation had fallen from hundreds of per cent a year to around 2 per cent a month. And within a year he’d managed to slash the poverty rate from 53 per cent in the first half of last year to 38 per cent.

For all this obvious success his inspirational economic experiment almost came crashing down. A defeat in the October midterm congressional elections looked all but certain after the president’s fledgling party Freedom Advances was roundly defeated in the September Buenos Aires provincial election.

The almost uniformly Peronist mainstream media, furious with their loss of around $US1 billion a year in government subsidies, smelt blood. Argentina’s financial markets were teetering on collapse once again as investors feared an empowered Peronist congress would reverse Milei’s reforms. It was only a US$20 billion currency swap lifeline from the Trump administration that stabilised the peso, keeping a lid on inflation and saving the day.

Debate about emissions targets … was nowhere to be found in Argentina.

In the end, millions of Argentinians grateful for a massive improvement in the purchasing power of their wages and a semblance of price stability, ensured the Milei experiment will continue. His strong showing in the congressional election was due in part to reforms to Argentina’s corrupt electoral system, whereby each party provided their own ballot paper, some of which would go ‘missing’ on election day. For the first time, in 2025 voters needed only one ballot paper.

Freedom Advances won almost 41 per cent of the vote, trouncing the Peronist opposition parties and lifting its representation in the 257-seat House of Representatives from 37 to 93, and from 7 to 20 in the 72-seat senate. With the support of a handful of other sympathetic conservative parties Milei will finally have the chance to legislate.

The real Milei revolution starts now, but the challenges remain huge.

“It takes time, it’s not as if there’s an election, you push a button, Milei wins, and suddenly we’re Switzerland,” influential congressman Bertie Benegas Lynch told me.

Argentina levies hundreds of different, inefficient taxes. Socialist labour market laws overwhelmingly in favour of employees have ensured around half the workforce is informally employed. I spoke to one former businessman in Buenos Aires, Tomas Olivera, who told me he caught staff stealing on camera and still had to pay them years in severance pay because he didn’t give them sufficient warnings.

It’s also a nation of 23 provinces or states, each with their own typically Peronist political traditions.

The peso remains chronically overvalued for reasons of pride and pragmatism. “When the dollar goes up [against the peso], people get even more nervous, so it actually hurts the economy, we want to avoid having abrupt moves,” Luis Caputo, the nation’s economy minister (Treasurer), told me in an interview in the Treasury building.

Milei had promised to dollarise the economy and abolish a peso he once described as ‘excrement’ but the government simply cannot afford to. It has fewer than US$10 billion in useable foreign exchange reserves and faces a debt repayment schedule of at least US$8 billion in the first half of the year alone, according to analysis by the Council on Foreign Relations in November.

Milei slashed the number of ministries and cabinet ministers from 23 to nine upon taking office in late 2023. Since then, he’s appointed only one new minister, Federico Sturzenegger, to oversee deregulation. A former central bank governor, he arguably has the hardest and most intricate task of all.

In perfect English—he studied at MIT with former Reserve Bank governor Philip Lowe—he told me at the outset of our discussion something too few economists in Australia are willing to concede.

“Sometimes people fantasise that regulation is someone thinking about how to do good, about benevolent public officials thinking about the greater good, but it’s really mostly the result of lobbying, the result of a private interest,” he told me.

“Maybe [not] in Australia, you guys are more orderly and have a better system, but in Argentina we start with the basis that all the regulations are not for doing something good for the population, but for protecting some rent or some privilege,” he said.

Sturzenegger, who said he’d been going over regulations for two years with a small team before Milei came to power, was being too kind about Australian regulations, but it was clear after our interview the extent of Argentinian regulation that had become pernicious to an absurd degree.

“I started receiving hundreds of emails, so many that eventually we decided to make a website, which is called ‘report your bureaucracy’, where people basically told us about insane things,” the minister said. He would frequently go on television and invite ordinary citizens to draw his attention to regulations that needed to go.

The minister recounted how a watermelon exporter had written to him in exasperation, explaining how the Argentinian bureaucracy insisted his perfectly good watermelons be packaged in a particular way that his overseas customers didn’t want.

“It was so funny; the guy said he solved the problem by putting the watermelons on a boat in the ‘correct’ packaging so he could get the certificate to export. The boat goes out 100 metres, stops and then he sends 60 guys out to the boat to break the packages and then repackage them for the ultimate customer,” he said.

“I realized that the guy was just showing me the tip of the iceberg; the amount of regulation that you have in the fruit industry, you have to get a PhD in literature, to read all that material,” he joked, before proudly showing me a physical pile of regulations his department had marked for abolition and another marked for major redrafting.

Sturzenegger said the government had reduced the headcount in the federal bureaucracy and public state enterprises from 300,000 to 240,000, including numerous employees who did nothing.

“We had a Ministry of Social Development, the official one, and then we had a parallel ministry, of 3,000 people, and basically they were just people who were not working and getting a pay cheque; this is the amount of corruption and efficiency we inherited.”

“It must have been yesterday in the cabinet meeting, the President was telling us that in the Soviet Union, you had two million people in the price setting department,” he added.

Coaxing foreign investors back to Argentina is among the government’s biggest challenges. Remaining exchange rate controls mean around US$6 billion of foreign investors’ dividend earnings remain trapped in Argentina.

“Companies didn’t feel confident enough in pouring the dozens of billions of dollars into a country where the rules of the game would change,” Daniel Gonzales, the vice minister for energy and mining, explained to me.

A former chief executive of the state oil company YPF, he would well understand. Former president Cristina Fernández de Kirchner, who is under house arrest for corruption, arbitrarily seized 51 per cent of the then privatised business in 2012 when she was president, without compensation.

This year saw some high-profile achievements, some of which took advantage of a Large Investment Incentive Scheme for projects larger than US$200 million. In October, OpenAI and Sur Energy announced plans to invest up to $US25 billion to build a large-scale data centre in Patagonia to support advanced artificial intelligence computing. In November, the state-owned oil company YPF announced a partnership with Italy’s Eni to turn Argentina into a “world class” exporter of LNG.

“We share the same mountains with Chile, the Andes, and Chile exports $US55 billion a year of resources, and we export $US5 billion,” Agustin Etchebarne, director-general of Argentina’s main free market think tank Liberty and Progress, told me in an interview.

Indeed, the government is in particular looking to mining to supercharge its economic renaissance and export earnings, critical to the accumulation of US dollars. Argentina like Australia is resource rich—in copper, gold, silver, uranium, gas, lithium and oil.

“We are of the belief that we were blessed with resources, hydrocarbons, and if we don’t do anything about it, that wealth basically falls away,” Gonzales said, dismissing the idea the government would throttle use of fossil fuel development as part of global ‘net zero’ ambitions.

The South American country offers a cautionary tale for Australia.

Indeed, the debate about emissions targets that’s roiled Australian politics for most of 2025 was nowhere to be found in Argentina. Gonzales’ colleague, Luis Lucero, the government’s secretary for mining, amusingly told me in a separate interview he didn’t know what the government’s emissions targets were!

BHP, Rio Tinto and numerous smaller miners from Australia and Canada have already begun to invest or have announced plans to invest. The province of Mendoza, traditionally famous for its wine, is at the forefront of trying to kick start a national mining industry.

“We would like to develop a world class mining sector like in Australia,” Alfredo Cornejo, the governor of Mendoza, tells me via a translator in the plush grounds of his private residence. The provincial government estimates there could be at least 8 copper projects producing 1 million tonnes of copper in the next 10 to 15 years, with an export value of around $US10 billion, around ten times the current export level.

“We see Australia as a key reference point for how our industry can drive development; our countries actually share several similarities, from our wine production to the vast desert regions that shape much of our territory,” he explains.

Australia’s resource sector and economic institutions commanded notable respect on my trip. Sturzenegger fondly recounted a meeting in Sydney about industrial relations reform with Paul Keating. And I wasn’t expecting Gustavo Rivarola, an economics professor in Mendoza, to bring up the Productivity Commission approvingly when we spoke.

From the two dozen interviews I carried out it was clear Javier Milei will have three legislative priorities in the new year, chief among them reforming the labour laws to entice millions of workers back into formal employment. Streamlining the tax system, including the possibility of a much flatter set of rates, and putting the pension system on a sounder footing figure highly too.

Lynch, whose famous economist father Alberto, remains one of Milei’s closest confidants, also said reform of the criminal law would be a priority. Minors face extraordinarily lenient penalties compared to adults. Children under 16 can’t be prosecuted or detained, even for murder, ensuring their exploitation by criminal gangs as hitmen and drug runners.

“This is my Australian inspiration,” Lucero said during our discussion, showing me his WhatsApp profile picture: an image of a large open-cut mine next to the township of Kalgoorlie.

The Argentinians I spoke to understandably look enviously at Australia’s standard of living, and our political stability. But the South American country offers a cautionary tale for Australia for two critical reasons. First, having a sophisticated economy and educated elite is no insulation against secular economic decline. Argentina has fine universities, a sophisticated civil society, and a diverse economy, including a large car manufacturing sector.

It is one of only three nations in South America with a domestic nuclear power industry. Its scientists and engineers built Australia’s only (research) nuclear reactor at Lucas Heights in the mid- 2000s, only a few years after the devastating recession that saw Argentina’s economy contract by a fifth.

Second, misguided economic policies can take many years to bear their poisoned fruit. President Juan Perón, who entrenched the populist socialism that ultimately led to Argentina’s economic downfall, left office the first time in 1955. Argentina remained rich for years after, having a GDP per capita above that of Spain, Italy and Portugal until the mid-1960s. It was only after the end of his second stint as president in the early 1970s that Argentina’s downward spiral became clear, as Juan Pablo Nicolini, an Argentinian economist Milei has cited approvingly, pointed out in his 2024 paper ‘Argentina at a Crossroads’. Argentina was no richer per capita in the early 2000s than it was in the mid-1960s.

Some of the Argentinians I spoke to were shocked to learn Australia’s top marginal tax rate (47 per cent) was much higher than Argentina’s (35 per cent), others that our industrial relations system micromanaged pay and conditions even more intricately than did Argentina’s.

Milei slashed federal government spending to around 16 per cent of GDP, while Canberra’s fiscal footprint is poised to burst through 27 per cent of GDP amid an explosion in regulation and bureaucracy, and ever mounting inflation. The lesson is clear: Australia must be careful not to become the Argentina of the 21st century.

This article from the Summer 2025 edition of the IPA Review is written by IPA Chief Economist Adam Creighton.