Georgetown Americas Institute

The year 2023 was a challenging one for Argentina. The country’s deteriorating social indicators and macroeconomic woes fueled a highly contested presidential election that presented voters with the choice between continuity and radical change. In the second round, the discredited government’s candidate, Sergio Massa, ran against newcomer Javier Milei, who won the final contest in a landslide victory. Inaugurated on December 10, the Milei administration faces a long list of challenges that include balancing the country’s deep fiscal deficit, reigning in rampant inflation, negotiating a new deal with the International Monetary Fund (IMF), and modernizing an economy known for its protectionism.

To address these issues, GAI hosted Dr. Jose Maria Fanelli, emeritus professor at Universidad de San Andrés; Ramiro Albrieu, associate professor of macroeconomics and finance at the Universidad de Buenos Aires; Lourdes Rodríguez-Chamussy, senior economist in the Poverty and Equity Practice at the World Bank; Alejandro Werner, founding director of GAI; and Nora Lustig, GAI resident fellow and founding director of the Commitment to Equity Institute (CEQ), to discuss the outlook for Argentina under the new administration.

Macroeconomic Challenges Ahead 

Fanelli launched the discussion with an analysis of Argentina’s short-term macroeconomic outlook. 

He argued that the country needs to impose politically unpopular austerity measures to solve the immediate liquidity crisis. He explained that Argentina faces twin deficits: a primary fiscal deficit that oscillates between 4% and 5% of GDP, and a trade deficit brought about in large part by a historic drought earlier in 2023. The Fernandez administration (2019-2023) also significantly expanded the monetary base to feed its electoral ambitions while hiking interest rates in a failed attempt to rein in inflation, starving the private sector of credit and deepening the recession. 

“Argentina has a very serious challenge in the next six months, but faces far better prospects in the ensuing six months. Metaphorically speaking, this is more a problem of liquidity than solvency.” -Jose María Fanelli

Fanelli identified a number of challenges for the following six months, including high inflation, the destruction of private credit and the prevalence of capital flight, negative central bank reserves, and the twin deficits. In more optimistic terms, 2024 also presents Argentina with a series of opportunities. The end of the drought and high commodity prices will help heal the trade balance and allow the central bank to recover reserves, while new energy infrastructure eliminates the need for costly fuel imports. 

In Fanelli’s opinion, the way out of the crisis is contingent on the development of a virtuous cycle. More investment and better resource distribution would generate more employment, which in turn should include more people in the formal economy. Such a cycle would empower the administration and provide a more stable governance environment—key to further expanding investment.

Argentina’s Labor Woes

Albrieu focused on the complexities of Argentina’s labor environment and the need for reform in the face of short- and long-term crises. 

In immediate terms, the Milei administration’s austerity and fiscal adjustment plans should include an income strategy to help soften the negative effects of the adjustment. In the long term, structural gaps between formal and informal workers come to the forefront, as well as the lagging productivity levels, which have remained immobile for the past decade. Argentina has an even deeper problem with the governance structures for labor, which still operate with outdated premises. 

“I see three main challenges within the structural labor crisis: the need to strengthen human capital formation, the need to respond to technological innovation dynamics, and the need to reform our outdated regulations.” -Ramiro Albrieu. 

In Albrieu’s view, Argentina has experienced a notable deterioration in the formation of human capital for decades. Productivity is also limited by the prevalence of outdated technologies that lag 15 to 20 years behind the world’s leading economies. Regulations have also proved inflexible in the face of a very unstable economy, creating an environment in which informal employment is prevalent. Informal labor in Argentina directly correlates with poverty and lower incomes. 

“There is also broad consensus that the current labor market with its incentives and rules is not conducive to a dynamic market. We need more technology, more digital infrastructure, a broad labor reform, and to focus on the most disadvantaged groups of our society.” -Ramiro Albrieu