Committee for the Abolition of Illegitimate Debt

Over the past months, there has been wild optimism in financial markets and among mainstream economists and international agencies that Milei’s self-styled ‘chainsaw economics’ was working. Since taking office, Milei had taken a ‘chainsaw’ to government spending in welfare and public services and sacked thousands of public workers. As a result, the government budget was put into balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. . Relying on record high IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org bailout funds to prop up the peso against the dollar, the Milei government has held the peso well above its real effective rate against the dollar in order to drive down Argentina’s horrendous inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. rate. It seemed that all was going well and all those the leftists and doommongers had been proved strong – chainsaw economics was working.

Foreign investors and international agencies rushed to praise the free market economics aims and fiscal austerity measures of the Milei government as a successful alternative to ‘pink socialism’. With a pin of Javier Milei’s signature ‘chainsaw’ affixed to her jacket, during a press conference at the IMF spring meeting, IMF chief Kristalina Georgieva urged Argentinians “to stay the course” and back Milei at the upcoming legislative elections in October. “It’s very important that they don’t derail the will for change,” she said.

Then the OECD OECD
Organisation for Economic Co-operation and Development OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/ followed up the acclaim. In its report on Argentina in July, their worthy economists pronounced that “against the background of a difficult legacy of macroeconomic imbalances, Argentina has embarked on an ambitious and unprecedented reform process to stabilise the economy. Reforms have started to bear fruit, and the economy is set for a strong recovery. Inflation has fallen to levels not seen in years. The upfront fiscal consolidation process started in late 2023 has been instrumental to taming high inflation. Still, fiscal policy will require further fine-tuning to maintain fiscal prudence in the medium to long-term, while boosting potential growth.”

But then the chainsaw broke, triggered by the provincial elections in Buenos Aires, the largest region in Argentina. Milei’s party was expected to do well, based on the apparent success of his economic policies. But instead – disaster. Milei’s party lost by a staggering 14 points and the opposition Peronist party won 6 out of 8 electoral jurisdictions, including three it hadn’t won in 20 years. Milei’s party’s vote share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. fell in all eight districts and he lost by 10 points in the crucial first district, which is both a bellwether and a major economic hub for the province.

So, unlike the mainstream economists, the IMF and the OECD, the Argentine electorate were not so enamoured of the ‘anarco-capitalist’ Milei’s chainsaw economics, especially with the scandals that abounded in the Milei administration. His sister Karina, called “the Boss” by him and appointed General Secretary of the Presidency (the highest ranking non-Cabinet office in the executive branch), allegedly has been taking bribes from all and sundry (‘Karina takes 3%’, said Milei’s personal lawyer).

But more important for the voters of Buenos Aires province was that Milei’s chainsaw had destroyed jobs, good paying jobs, closed many businesses and forced people into ‘informal’work ie to make a peso anywhere they could. Milei claimed that the Argentine poverty rate has fallen under his government. And it is true that, as the inflation rate fell, the official poverty rate also dropped, to 31.6 percent in the first half of 2025. But the official poverty rate uses an outdated basket of goods to measure the cost of living. When that is updated (soon), the results could well be worse. Anyway, the huge cuts in government spending have led to high environmental risk, according to an index that considers the presence of pests, accumulation of garbage, and proximity to sources of pollution. Only 27% of homes are on paved streets, while 46% are on dirt roads. Half of households studied didn’t have a formal water connection and the figure was as high as 95% in some neighborhoods. Meanwhile, 63% were not properly connected to the power grid; and 41% of families rely on community kitchens, a figure that reaches 60% in some neighborhoods.

The Milei administration has defunded soup kitchens, accusing the social organizations that run them of being corrupt. So in Córdoba, a study found that 58% of families couldn’t afford the basic food basket in August. Half of households said they were skipping one of their daily meals, usually dinner. Two-thirds of Argentine children under the age of 14 are living in poverty. Multidimensional poverty (measured as income plus lack of access to key welfare factors) increased inter-annually from 39.8 to 41.6 percent and within that figure, structural poverty (three wants or more) rose from 22.4 to 23.9 percent. In sum, 25-40% of Argentine families are in deep poverty. And there has been a further increase in inequality. The top 10% of income earners now earn 23 times more than the poorest decile, compared to 19 times a year ago. The fall in income reached 33.5% year-on-year in real terms among the poorest decile, but only 20.2% among the richest. The gini inequality index has hit an all-time high of 0.47.

The Buenos Aires election ended the fantasy that Milei’s chainsaw economics and ‘free market’ policies were working. Capital, both domestic and foreign, suddenly realised that Argentines could soon vote out their hero and return the dreaded Peronistas to office. There was a run on the peso and the government and central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx was forced to use its scarce dollar reserves to try and keep the peso within the agreed exchange rate band with the US dollar, and so preserve the downward pressure on inflation. FX reserves dropped by more than $1bn a week, a rate that would soon have emptied the purse. Argentina has only $30bn in FX reserves. The government would not have been able to sustain the peso for much longer.

Source: Brad Setser

Milei may have balanced the government budget but the fiscal chainsaw did not deal with the continued weakness in the trade account. Under Milei, exports rose a little but imports also rose and income from exports flowed out. The monthly income deficit on the current account rose.

Source: Brad Setser

As soon as investors got hold of these FX dollars, they took them out of the country. In 2024, outbound investment totaled $3.3 bn (Argentines making portfolio investments abroad) and a $1.4 bn reduction in foreign portfolio investments into the country; so a total of $4.7bn outflow. In 2025 so far, another $2.6bn has left the country. This leakage of dollars is unsustainable.

Why was this happening? As the government aimed to maintain a strong peso to keep inflation falling, it had to use its dollar reserves to fill the income and investment gap. The strong peso may have driven down inflation as import costs fell, but it also meant that Argentine exports could not compete in world markets. And balancing the government budget did not deliver more dollars, but instead led to economic stagnation. Indeed, in the last few months, economic growth has petered out.

And ironically, even the artificially overvalued peso is no longer pushing down the monthly inflation rate – it’s been rising for the last three months.

Given the strong peso, Argentine industry cannot compete, so it is not investing at home. Over the past six quarters (from Q2 2024 to Q2 2025), the investment-to-GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. ratio averaged a new low of 15.9%. Investment rates are low because the profitability of capital invested in Argentina is at a record low.

Source: EWPT series and author’s calculations

And that’s the long-term story of Argentine capitalism. The economy has basically stagnated since the end of Great Recession in 2088-9, particularly since the end of the global commodity prices boom in 2012. In the 13 years from 2012 to 2024, average real GDP growth was just 0.1%. Industrial output is falling and household consumption is stagnant, with retail sales falling. That’s hardly surprising when state salaries are down by 33.8% in real terms and Argentines are forced desperately to find work ‘informally’ as best they can.

According to the IMF, real GDP growth was expected to expand by about 5½ percent this year. That does not seem likely now. But such a rise in real GDP in 2025, even if achieved, would only take per-capita GDP back to the level of 2021, when the economy was emerging from the pandemic. Indeed, the per capita GDP index would still be well below its peak of 2011 (at the height of the commodity price boom), some 15 years ago.

Source: IMF

The key to economic success in Argentina, as it is in all economies, is an increase in the productivity of labour through more investment in the productive sectors of the economy. All the previous IMF loans ended up being smuggled or invested abroad or used for financial speculation. Neither right-wing nor Peronist governments did anything to stop this speculative robbery of the Argentine people and resources.

As Argentine Marxist economist Rolando Astarita has pointed out, Argentina’s underlying weakness is related to technological and productive backwardness. Except in sectors where Argentina has natural advantages, such as energy from the Vaca Muerta region or the soy and corn complexes, productivity standards are low relative to international standards. Even in soybeans, wheat, and corn, productivity is below that of US producers. These differences are essentially due to differences in the level of investment in inputs and technology.

Source: Conference Board, TED2

Argentina’s foreign exchange reserves are lower now than they were in 2018, despite the IMF making huge loans since then. Former President Mauricio Macri borrowed $50bn that year — the fund’s biggest ever bailout — before his political downfall blew the IMF programme off course and hit the currency. Now after allowing for the IMF’s loans and liabilities Liabilities The part of the balance-sheet that comprises the resources available to a company (equity provided by the partners, provisions for risks and charges, debts). such as a swap line from China, Argentina’s reserves have stayed heavily negative this year despite the IMF advancing more than half of a fresh $20bn bailout upfront.

Beginning in September 2026, large FX debt service Debt service The sum of the interests and the amortization of the capital borrowed. obligations to private bondholders are coming due. Argentina has $95bn of dollar- and euro-denominated debt, against net reserves of just $6bn, according to Barclays. And it has to make $44bn worth of debt repayments between now and the end of Milei’s term in 2027. So Milei can ill-afford to use scarce foreign exchange reserves to prop the peso.

Also the US government will expect to get its $20bn back and the IMF ia already owed $57bn of credit outstanding to Argentina, or 46 per cent of the total. Will they be prepared to add more bad money after good?

So a devaluation Devaluation A lowering of the exchange rate of one currency as regards others. of the peso looks increasingly inevitable. The peso needs to fall about 30 per cent to restore Argentina’s competitiveness and rebuild FX reserves, according to Capital Economics. But if that were to happen quickly, inflation would spiral upwards just as before Milei came into office. Thus the Trump admistation has stepped up (temporarily) to fix the chainsaw. “The plan is as long as President Milei continues with his strong economic policies to help him, to bridge him to the election, we are not going to let a disequilibrium in the market cause a backup in his substantial economic reforms.”

The aim now is for Milei to win the mid-term congressional elections and then devalue (gradually?) to boost exports and bring in dollars. But that will also mean the return of high inflation. So much for chainsaw economics.