Milei creates the "Argentina Miracle" in his first year in office, and Trump also wants to "copy the homework"?

Known as the "Argentinian Trump," Argentine President Javier Milei has marked his first anniversary in office by creating an "economic miracle" through "shock therapy," turning the budget from a deficit to a surplus and reducing the inflation rate from 300% to 2.7%...

These reform measures align closely with Trump's advocacy, as both support significant spending cuts and promote a small government. Argentina's "miracle" seems to provide some lessons for the United States.

It is worth mentioning that Milei has also become a guest of honor for Trump. On November 4th, Milei attended a dinner at Mar-a-Lago in Florida and delivered a speech as a distinguished guest. After President Trump successfully secured re-election, Argentine President Milei became the first foreign leader to visit him.

Milei's visit was not only a courtesy call but also an opportunity to deepen cooperation.

He revealed that Elon Musk is communicating with the Argentine government to learn how to promote economic liberalization in the United States. On Tuesday at the Meta Day conference in Buenos Aires, Milei mentioned:

The United States has noticed and begun to emulate our approach, and Musk is discussing how to deregulate the U.S. economy with former Regulatory Minister Federico Sturzenegger.

Can Argentina's "shock therapy" become a "cure" for the U.S. economy?

The Argentine Miracle: Zero Fiscal Deficit, Cooling Inflation, Increased Foreign Reserves

Argentina had previously been mired in an economic crisis, plagued by high inflation, soaring prices that significantly increased the cost of living for the public, and a high poverty rate, among many other issues that left the populace suffering.

In this critical moment, Milei, known for his radical economic reform agenda during his campaign, proposed significant cuts to government spending, a zero fiscal deficit, and comprehensive "dollarization," which gave some citizens hope for a change in the economic predicament.

President Milei's focus is on drastically reducing government spending. He has slashed billions of dollars in public expenditure, reduced the number of government departments from 22 to 9, laid off over 30,000 civil servants, and halted all infrastructure projects to alleviate the fiscal burden.

1. Significant Cooling of Inflation

Milei's government has successfully achieved what many believed was nearly impossible for a South American country. According to data from the Center for Political Economy in Argentina (CEPA), since taking office last year, Milei has cut government spending by 32%, reducing the annual inflation rate from over 300% to 2.7% in October this year, the lowest level since 2017.

2. Improved Credit Rating

Moreover, the credit rating has also improved. After years of severe fiscal deficits, Argentina has achieved a surplus, enhancing investor confidence in Argentina's debt repayment capacity. Fitch Ratings upgraded Argentina's national credit rating by two levels to CCC.

Fitch analysts, including Todd Martinez, noted in a statement this Friday that recent positive developments in Argentina have increased Fitch's confidence in the government's ability to repay debt. They believe the Argentine government is now more likely to repay foreign currency bonds on time without needing to seek debt relief 3. Increase in Foreign Exchange Reserves

In addition, Argentina's foreign exchange reserves were in a severe "deficit" state when the Milei government took office, and this year the Argentine central bank has net increased its foreign exchange reserves by $19 billion. Moreover, with investors' confidence in the Argentine market increasing and the implementation of a forgiveness plan for depositors, the Argentine government successfully attracted nearly $20 billion in dollar deposits back to local banks.

Although the "shock therapy" has shown significant effects, the short-term pain is also very evident. Data shows that Argentina's GDP fell by more than 5% in the first quarter of 2024, and the poverty rate soared from 42.5% to over 50%, with many people suddenly plunged into extreme poverty and hunger. However, the World Bank believes that Argentina has passed its worst period, expecting a full-year economic contraction of 3.5% in 2024, with GDP expected to grow by 5% in 2025.

Although spending cuts affect people's livelihoods and usually lead to unemployment and a decline in social welfare, the Milei government has successfully avoided street protests triggered by a surge in poverty by protecting and increasing certain welfare programs, which is a noteworthy aspect of its governance achievements. This is because in South American countries like Argentina, the public usually reacts strongly to policy changes that affect their interests, and there have been historical instances of large-scale protests or even riots triggered by similar policy adjustments.

Despite the economy still being a potential "tinderbox," Milei's approach has won the trust of Wall Street. The S&P Merval stock index has reached an all-time high, and the price of Argentine bonds has surged from about 20 cents per dollar to nearly 70 cents this year.

The "Unintentional Coincidence" of Milei and Trump

Trump and Milei have many similarities, with Milei being a precursor to Trump to some extent. For example, both are conservatives, and Milei's government is composed of more moderate conservatives. Additionally, both Milei and Trump support free market principles, with Milei taking an absolutist stance on economic policy, committed to eliminating all trade barriers in Argentina. While Trump supports free markets, he is also a staunch protectionist, having claimed during his campaign to impose high tariffs on imported goods.

Furthermore, they both advocate for the idea of a small government. Milei abolished nine ministries, including the Ministry of Women, Gender and Diversity and the Ministry of Education, to reduce the size of government. Trump also proposed measures to reduce government intervention in the economy, such as tax cuts and deregulation.

Moreover, both support significant cuts in government spending. After taking office, Milei drastically cut billions of dollars in public spending, reducing the number of government departments from 22 to 9, laying off more than 30,000 civil servants, and halting all infrastructure projects.

After his re-election, President Trump announced the establishment of the "Department of Government Efficiency" (DOGE), led by Musk and entrepreneur Vivek Ramaswamy, focusing on reducing the federal budget. Although this department is not an official federal agency, it will serve as an external advisory group to the White House Office of Management and Budget. Last month, Musk stated that every dollar spent by the government either leads to rising prices or must be paid for through taxation, and the "Department of Government Efficiency" aims to address this issue Although the national conditions are vastly different, will Milei's experiment provide some reference for Trump's upcoming policies?

Analysts point out that such large-scale cuts may be more difficult to achieve in the United States than in Argentina. On one hand, the federal budget in the United States is much larger than that of Argentina, which has a national budget of only about $101 billion, even lower than that of New York City. On the other hand, it remains unclear whether American voters will support Trump's spending cut plans