Javier Milei took office on the 10th of December, 2023, with one clear mandate. Save the Argentinian economy. The monthly inflation rate the month before was 160.9%, the CPI increase was 12.8%, and the Central Bank had increased interest rates to 133%, its sixth hike in the last year.
Milei, a complete outsider in Argentine politics until 2021 when he won election in the Congress, led a campaign described by many as a revolution against the political order, and in specific, the Peronista political brand that had dominated Argentinean politics for the past century.
Historical Context
Milei, an economist and author, promised Argentinians an end to what many called 'the lost century' following WW1. Argentina was the 6th largest economy in the world per capita before the outbreak of World War 1, only behind the likes of England, France and the USA.1 Argentina, with its export-based agricultural economy, was hard-hit following the Great Depression and the trade restrictions that were placed in its wake, but this does not explain the full picture.
1: Maddison Project Database Comparison of GDP Per Capita
If trade allies new protectionist trade policy was the reason for Argentina's economic misfortune, then we would presume that the point of deviation was 1930. Looking at 1 however we see that, by 1940, the Argentinian economy was still roughly keeping pace with nations such as France, Italy and Germany, who at this point in time were definitively protectionist in trade policy, partly due to ideological beliefs (autarky for Germany) and/or logistical difficulties in maintaining trade relations across the globe during war. While Argentina was hard-hit by the end of world free trade, this does not seem to be the main driver of their economic misfortune.
Politics in Argentina
In Nobel Laureates Daron Acemoglu and James Robinson's book "Why Nations Fail" they posit that, in countries with politically extractive institutions (institutions that seek to preserve the elite structure rather than become pluralistic and open to the entire nation), the economy stagnates and/or regresses, as the political establishment establishes an economically extractive society (the elite consolidate the economy through ownership and regulation to benefit only themselves) in order to cushion their political position and enrich themselves.
As seen in figure 2, Argentina underwent no less than 6 military coups between 1930 and 1983, when the military dictatorship agreed to permanently hand power back to the democratic process.2
2: The Economist, % Change of GDP Year on Year alongside political developments
Under the leadership of the various military dictatorships, (broken intermittently by the leadership of Juan Domingo Peron, himself a product of the 1943 military coup) GDP growth dropped dramatically.
Juan Domingo Peron is perhaps the single most important figure in the politics of Argentina. His party, the Justicialist Party (colloquially called the Peronist Party) has ruled Argentina for a total of 40 years. Peronismo advocates for strong government presence in the market, heavy protectionist trade policy and a welfare system that is so all-encompassing even Netflix subscriptions are state-subsidised. Here lies the crux of the problem. For the last 120 years, Argentina has operated in a fiscal deficit in 110 of those years. Peron and Peronist leaders such as Cristina Kirchner sought to buy the votes of the population through reckless state expenditure, expansive protectionism that left Argentina woefully under-industrialised, and with a currency that would inflate on a whim.
The Solution
It can be therefore comprehensively stated that Milei inherited a nation in crisis.