"Cutting Out the Evils with a Chainsaw" Argentina's Reform Hero, President Milei [AK Radio]

IMF Praises Success of Structural Reforms
Argentina Overcomes "Sick Man of South America" Image Through Restructuring
Rising Poverty Rate and Abandonment of Exchange Rate Defense Remain Drawbacks

Despite possessing abundant resources and vast territory, Argentina, once dubbed the "sick man of South America" due to repeated economic crises caused by political populism symbolized by Peronism, is recently showing signs of new change. The Argentine economy, which had been struggling with severe inflation and recession, is attracting international attention as it turns to recovery through bold reform policies. Argentina's transformation, preparing for a new leap after decades of economic stagnation, is capturing the focus of the global economic community.

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), recently praised Argentina's restructuring and stable economic growth as "one of the most impressive cases." Elon Musk, who will serve as head of the U.S. government's Office of Management and Budget under the Trump administration, also praised President Javier Milei's reforms on his social media, stating that Argentina's example will be helpful to all countries. In particular, policies on spending cuts and accelerated public sector reforms have received high evaluations, offering new insights into solving fiscal soundness issues faced by countries worldwide.

In the 2023 presidential election, President Milei appeared wearing a leather jacket and holding a chainsaw, performing a symbolic act of "cutting out rotten evils," earning him the nickname "Chainsaw Reformer" in the international community. His unconventional approach has continued since taking office, and despite opposition from the established political circles, he is recognized for maintaining a strong reform drive.

Reuters Yonhap News

Born as the son of a bus driver in Buenos Aires, President Milei developed a strong interest in economics and worked as a chief economic advisor at the British investment bank HSBC. He also served as a researcher at the B20, responsible for economic policy at the International Chamber of Commerce, and at the World Economic Forum. In 2018, he founded the Liberty Party and united minor right-wing parties to create a new political coalition, eventually becoming president. Currently, the Liberty Party holds 5 of 72 seats in the Senate and 28 of 257 seats in the Chamber of Deputies, making it a minor party, but under Milei's leadership, it is driving significant change. His expertise as an economist and practical experience have drawn attention to his policy implementation capabilities.

President Milei's reforms have shown tangible results within just over a year of his inauguration. Hyperinflation, which had reached 190-200%, was reduced to 118%, and the government budget turned to a surplus for the first time in 12 years. The peso's value and exchange rate have stabilized, and Argentina's representative stock index, the Merval Index, rose by 172.52% last year. The economic growth rate, which was minus 7% at the start of his term, is expected to recover to 5% this year. These improvements in economic indicators have led to increased confidence in Argentina in international financial markets.

These achievements were made through bold austerity measures. The number of government ministries was reduced from 18 to 9, and a total of 70,000 personnel, including 33,000 public sector workers, were cut. Additionally, populist policies such as pension increases were rejected, and intensive restructuring was carried out. On the other hand, investment promotion policies were implemented for key industries such as forestry, tourism, energy, and steel, including a 10 percentage point corporate tax cut for companies investing over $200 million, creating a virtuous economic cycle. This dual strategy is seen as an attempt to catch two rabbits at once: austerity and growth.

AFP Yonhap News

However, side effects from the radical reforms have also emerged. Due to Argentina's high dependence on public sector employment, the unemployment rate rose to the 8% range, and the poverty rate exceeded 54%. Income inequality has deepened, increasing demands for expanded social safety nets. Nevertheless, the Milei administration maintains approval ratings above 50%, raising the possibility of long-term governance. This is analyzed as reflecting the Argentine people's perception that the economy is genuinely improving and their consensus on the necessity of structural reforms despite short-term hardships.

Recently, President Milei has also been promoting "dollarization," a policy to replace the national currency with the U.S. dollar. This is a drastic measure adopted by several South American countries, including El Salvador, facing severe inflation. While it helps stabilize the economy in the short term, concerns have been raised that it sacrifices the independence of national monetary policy, exposing the country directly to shocks from changes in U.S. interest rate policies. This dilemma particularly affects middle-income countries with small open economies that are non-reserve currency nations.

Experts evaluate Argentina's reform case as a reference for improving government inefficiency and reducing wasteful management. Especially in South Korea, where youth unemployment is high and public sector jobs are increasing, and both household and government debts are rising simultaneously, Argentina's government sector restructuring offers significant implications. From the perspective of efficient welfare budget execution and government sector restructuring, Argentina's reform case could become a noteworthy model.

Whether Argentina's chainsaw reform will lead to sustainable growth remains a task to be observed. However, by laying the groundwork for change through bold restructuring and economic reforms, President Milei's experiment is already regarded as providing meaningful lessons to the global economy.

Editor's NoteThis content is also available on Asia Economy's economic podcast 'AK Radio.' AK Radio is a platform that delivers essential information for investors, covering politics, economy, international affairs, technology, bio, and digital trends. Clicking the video play button within the article allows you to hear the reporter's actual voice. This article is a reorganization of the content broadcast on AK Radio through ChatGPT.

This content was produced with the assistance of AI translation services.