Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Argentina’s libertarian President Javier Milei has announced he intends to eliminate the budget deficit entirely next year, doubling down on promises of fiscal discipline despite a recession.
Milei turned the annual budget speech, normally a routine event handled by the economy minister, into a high-profile event in Congress broadcast live nationwide. At a challenging time for his nine-month-old administration, he is seeking to rally public support amid growing pressure to increase spending and a dip in his ratings.
The proposal, which aims for a surplus equivalent to 1.3 per cent of GDP before interest payments in 2025, also makes ambitious projections of an economic rebound and a sharp slowdown in inflation. It forecasts growth of 5.0 per cent next year, after an expected 3.8 per cent contraction this year. It also forecasts prices rising just 18.3 per cent in the 2025 calendar year after expected inflation of 122.9 per cent this year.
“After years of the political class shackling individual freedoms, today we’re here to shackle the state,” said Milei in a half-empty Congress, amid criticism from the opposition, many of whom stayed away, and the fervent applause of his supporters.
“The decision is yours,” he said to lawmakers in a 43-minute speech. “Citizens will decide whether to place you on the avenue of the righteous or in the corner of the miserable rats who bet against the country.”
Clashes with lawmakers have been fierce in recent days. The government successfully defended its veto on a pension increase law that threatened its austerity programme, which has so far generated a primary surplus of 1.4 per cent of GDP through July. Shortly after, a law to boost university spending was passed, prompting Milei to brace for yet another veto.
“The root of Argentina’s deficit lies in politicians’ insatiable appetite for spending,” said Milei. “We must honour the titanic effort made by Argentines. We will veto any project that jeopardises fiscal balance.”
Underlining his commitment to fiscal discipline, the budget proposal incorporates clauses that would adjust revenues and expenditures to meet the zero-deficit pledge in the event that actual economic growth deviates from the projections.
Antagonising lawmakers has been a key part of Milei’s strategy from the start. Breaking with tradition, he delivered his inaugural address on the steps of Congress, turning his back on lawmakers — a symbolic move in a country where presidents typically deliver their inaugural speeches within its chambers.
“The budget is the heart of Milei’s economic programme, and also his main political challenge,” said Lucas Romero, who runs the Argentine political consultancy firm Synopsis. “He has tried to offset his parliamentary weakness with a ‘going public’ strategy: appealing directly to the people to pressure Congress into passing laws.”
During his speech, Milei also called on provincial administrations to emulate his spending cuts, insisting that an additional $60 billion in province-level cuts were necessary.
“It’s a budget aimed at reinforcing fiscal order as the cornerstone of the programme,” said economist Fernando Marull. “It’s a positive step and aims to continue on the same path as before.”
Milei, an economist, took office last December pledging to rescue Argentina from decades of mismanagement by controlling spending tightly and slashing borrowing. However the country plunged into a technical recession earlier this year, and while there are faint signs of recovery in select sectors, the overall economic downturn has continued unabated.
“The Achilles heel of any austerity programme is social tolerance,” said Romero. “Have Milei’s approval ratings plunged? No, but the downward trend is unmistakable. For him to reverse this trend, it’s crucial that the economic recovery becomes visible sooner rather than later.”
Read the full article here
