Has Argentina’s economy improved in the first six months of Millay’s administration?

Javier Milley wielded a chainsaw while campaigning for Argentina’s presidency last year to symbolize his determination to drastically cut public spending.

Six months into the right-wing president’s presidency, how is his shock therapy for the country’s government and economy working?

“The changes we need in our country are radical,” Milley said shortly after being elected. “There is no room for incrementalism.”

And he certainly acted swiftly. His initial set of measures included devaluing Argentina’s currency, the peso, by 50 percent, slashing government subsidies for fuel, and cutting the number of government ministries in half.

Sharp cuts in public spending have helped Argentina turn a budget deficit – the difference between government spending and revenue – of 2 trillion pesos ($120bn, £93bn) in December last year to a surplus of 264.9bn pesos in April.

Argentina also reported surpluses in January, February and March, marking the first time it has met this monthly target since 2012.

But Milley, a self-described libertarian, has made controlling inflation a top priority, telling the BBC last year that inflation is “the most regressive tax there is”.

Inflation has been slowing, falling to 8.8% month-on-month in April, the first time it has fallen below double digits since October – a measure of inflation more commonly seen in countries such as Argentina that have long had high inflation.

However, the globally recognised annual inflation rate stood at 289.4% in April, compared to just 2.3% in the UK at the moment.

Official growth figures have yet to be released since Millay took office on Dec. 10, but there is evidence that Argentina’s economy has contracted sharply and consumer spending has fallen in the first three months of the year.

Meanwhile, other promises made by Millay during the election campaign, such as replacing the peso with the US dollar and abolishing the central bank, have recently taken a back seat.

The problem for Millay is that his La Libertad Avanza (Advancement of Freedom in English) coalition does not have a majority in Argentina’s Congress, and reaching a bipartisan agreement is proving difficult.

Milley wants Congress to give him the power to privatize more than 20 state-owned enterprises, including the national airline, railways, post office and national water company.

An original “omnibus” bill containing the privatization plan and hundreds of other economic measures failed at second reading in February. A stripped-down version resubmitted to parliament in April passed the House of Representatives but has yet to be approved by the Senate.

The president is also facing stiff opposition from trade unions, who have taken to the streets to protest, arguing that sweeping deregulation of the economy would undermine workers’ rights.

Juan Cruz Diaz, managing director of Argentina-based geopolitical risk consultancy Cefeidas Group, said Milley’s government’s economic policies are just as radical as those promised during the election, just a little slower.

“The administration was forced to delay these reforms due to the political and social obstacles it faced,” Diaz said.

He also cited “concerns about declining purchasing power and growing social unrest” as specific factors that are leading the president to tread carefully.

The number of people living in poverty has increased from about a quarter of the population in 2017 to more than half today, and shows no signs of decreasing.

But the International Monetary Fund, which has lent Argentina more money than any other country for decades, gave the government a high rating in May, saying its performance was “better than expected” and that its economic plans were “solidly back on track.”

Asked whether Millay could get further policy agreements in Congress, Diaz said some opposition parties were open to dialogue with the government, but left-wing parties were completely opposed to the president’s policies, including the Peronist faction led by former President Cristina Fernández de Kirchner.

“In these circumstances, the government’s negotiating skills and ability to build consensus are being tested daily, but Milley himself often undermines these tests with certain outbursts and unnecessary confrontational statements,” Diaz said.

Indeed, many Argentines see Millay’s cheerful personality as more of a hindrance than a help.

A new survey by political consultancy Zuban Córdoba found that 54 percent of respondents believe the president is more concerned with his own international political image than with solving Argentina’s problems.

This perception has undoubtedly been reinforced by the current diplomatic dispute between Argentina and Spain, which has led Madrid to recall its ambassador from Buenos Aires.

Kimberly Sperfechter, emerging markets economist at research group Capital Economics, said Millay’s biggest challenge is overcoming “years of economic mismanagement” in Argentina.

“One key factor is that governments have spent far beyond their means. [for decades]”And that deficit has been financed by central banks printing money to fund government spending.”

This printing contributed to skyrocketing inflation in the country.

Argentina, the world’s eighth-largest country, has actually been in decline for more than a century, and its decline is a lesson in how a nation’s wealth can be squandered.

Before World War I, the country was among the top ten richest countries in the world.

However, the gradual economic contraction that followed was greatly accelerated by the populist policies and excessive spending of President Juan Perón, who was in power from 1946 to 1955.

There was a brief period of free-market reforms in the 1990s under President Carlos Menem, who privatized many of the companies nationalized by Perón and made serious efforts to restore confidence in Argentina’s currency.

But things went awry at the end of 2001, when the country suffered a devastating economic collapse and a massive debt default of $102bn (£80bn).

By pegging the peso to the dollar, Argentina locked itself into a virtually inflexible currency regime that, combined with the government’s habitual overspending, made it vulnerable to the ups and downs of the U.S. economy and helpless when runs on Argentine banks occurred in 2001.

In the two decades since that crisis, Argentina has been governed primarily by left-wing protectionists who have essentially managed to get by without addressing the country’s deep-rooted problems.

Now, with a right-wing Liberal government in power, the country is trying to chart a new course, and that means getting the government’s finances in order.

To help Milley’s government achieve this, research firm Consensus Economics says the administration is focusing on Argentina’s vast agricultural exports of grain, soybeans, meat and wine.

“Policymakers are banking on agricultural exports to bring in much-needed foreign exchange to replenish depleted reserves at the central bank. [foreign exchange] “It will increase reserves and, in turn, improve the state’s financial reliability,” the consensus states.

But Sperfechter believes Argentina’s economy is currently at a “tipping point” and that Millay cannot count on public support despite his election victory.

“It wasn’t a vote of protest, more a vote of protest than a vote of approval for his policies,” she said. “Things couldn’t continue as they had been.”

Sperfechter believes that despite the devaluation of the peso, the currency remains overvalued, possibly by as much as 30 percent. The exchange rate is not completely free to rise and fall, but is still controlled, which he says stifles growth and hurts competitiveness.

“I don’t really know about Argentina, but I think the shine is fading,” Sperfechter said. “Optimism is fading and the economy is going to struggle.”