Javier Milei faces the dilemma of lowering inflation or boosting the economy in Argentina

Javier Milei, who became Argentina’s president brandishing a chainsaw and making macroeconomic order his cornerstone policy, currently seems to have become trapped by his own dogmas. Public sentiment is beginning to sour as a large number of Argentinians feel that their daily lives are deteriorating, and the government now faces the dilemma of how to revitalize the economy without fueling inflation or altering the rigid foundations of its plan. Questioned even by economists who are aligned with him, the president has admitted for the first time that “not everyone is better off” under his administration. But there has been no self-criticism that might suggest a change of course. “I will continue to maintain fiscal austerity: the chainsaw is still running,” he warned.

While the government initially managed to reduce monthly price increases from around 12.8%—the rate recorded in November 2023, the last full month of Alberto Fernández’s presidency—to 1.5% in May 2025, a significant achievement for the population, inflation has since accelerated, reaching 3.4% by the end of March, after 10 months of rises. Hopes of fulfilling the promise that monthly inflation would “tend toward zero” by August or that it would close the year around 10% are now lost, but the government wants to avoid any adjustments that could trigger a spike and further strain household incomes, already hit by a 6% drop in real wages between November and March, according to a report by Banco Provincia. The global context, with rising fuel prices due to the war in Iran, only exacerbates the situation.

During left-wing Peronist governments like those of Cristina Fernández de Kirchner and Alberto Fernández, the decision to inject more money into the economy was implemented through direct means: transfers to specific groups (retirees, low-income sectors, school-age children) or subsidized consumption (from food stamps to public utility rates). The opposition called these “little money” programs, drawing attention to the consequences they had on public finances and inflation.

For a president who has repeatedly stated that “inflation is always and in every instance a monetary phenomenon,” the possibility of printing money to implement such measures is off the table. Policies that use public spending as an engine during economic downturns are “Keynesian garbage” for Milei, who is beginning to explore other, more discreet approaches that could stimulate consumption and investment.

This month, the Central Bank decided to reduce bank reserve requirements—the percentage of deposits that must be held in reserve to cover potential mass withdrawals—which, along with other recent regulatory changes, aims to lower interest rates and thus boost bank lending. A limitation to this strategy is the growing delinquency rate among Argentine households, which makes banks very cautious about lending money. According to the consulting firm 1816, in February delinquency for households reached 11.2%, the highest figure since 2004. “This data reinforces the idea that there is an economy with record GDP and even record private consumption, but which at the same time is showing difficulties in reaching broad sectors of society,” the report states.

The economy is growing very unevenly, and while the most labor-intensive sectors (industry, construction, commerce) are showing signs of weakness, sectors that are hiring less (agriculture, energy, mining) are leading the way. Construction, for example, formally employs around 380,000 people and plummeted in 2024 with Milei’s rise to power and his abrupt cuts to public works. Now, initiatives such as the launch of new concessions for national highway projects are attempting to restore some activity. In June, work will be underway on 9,000 kilometers of roads, and another 12,000 kilometers will be put out to tender, according to Economy Minister Luis Caputo.

For Matías Rajnerman, chief economist at Banco Provincia, one challenge facing the government is how to prevent the pesos it manages to inject into the economy from being used to buy dollars, which would drive up the exchange rate. In Argentina, dollar appreciation is quickly passed on to local prices, fueling inflation. Rajnerman therefore sees the current moment as a good opportunity to try, as Argentina’s annual agricultural harvest begins to be sold to the world, counterbalancing the flow: dollars are leaving the system, but they are also entering it.

Minister Caputo does not believe there is a tension between lowering inflation and boosting the economy. “We are going to see a disinflation process with greater growth,” he asserted this Tuesday at the annual meeting of AmCham, the chamber representing American companies in Argentina, before promising that in April the country will enter “the best 20 months it has seen in recent decades.” His message aligns with that of the president, who, while acknowledging economic problems for the first time and asking Argentinians for “patience,” does not plan to alter his course of action. “The chainsaw doesn’t stop. We are going to tie ourselves to the mast; we are not going to listen to the siren songs,” Milei declared in his closing remarks at AmCham.

The far right has other reasons for sticking to its plan. Its “zero-cash” fiscal policy is valued by the International Monetary Fund (IMF), which on Wednesday approved the second review of the extended fund facility program with the country and released a new disbursement of around $1 billion. Maintaining a good relationship with the international organization is key for Argentina, which is its largest debtor in the world, with a total debt exceeding $57 billion.

According to economist Sebastián Menescaldi, director of the consulting firm EcoGo, Milei has no short-term solution to the dilemma he faces. “For now, he can only prevent the public discontent from escalating and try to give the economy a bit more breathing room through monetary policy, but at the cost of a potential dollar correction and prices continuing to rise at a higher rate of inflation than anticipated,” he summarizes. The president has the advantage that there is still more than a year until the elections, which gives him some leeway to attempt gradual changes that will improve public sentiment before the economic turmoil that the polls will generate once again.

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