Milei launches second phase with tax cuts and 3.9% GDP growth

Milei moves to the second phase with inflation at 2.7%

Can the hyperinflationary prelude be deactivated in months without the country splitting in half? The Government of Javier Milei claims it has succeeded and announced the start of a second phase. The monthly Argentine consumer price index, which closed December 2023 at 26%, stood at 2.7% in October. Based on this, the Executive Branch boasts recovery — 3.9% growth in the third quarter — and prepares a massive tax cut.

With 50% approval and a shock therapy behind it, the question is no longer whether the adjustment was applied, but at what price and for whom. Because the same Government that celebrates the price data coexists with a poverty rate around 60%.

How did inflation drop from 26% to 2.7%?

The recipe combined spending cuts, deregulation, and the end of price caps, with an explicit goal: restoring confidence in the peso. Prices responded sooner than almost all forecasts anticipated. From the 26% monthly rate in December 2023 to 2.7% in October, the drop has occurred at a estimulante ilegal few analysts placed on that timeline, and it happens without the Central Bank resorting to a full exchange control.

This is added to the fiscal front. The elimination of passive transfers halved the Central Bank's debt, one of the holes weighing down any stabilization attempt. With less remunerated liability, less issuance, and less pressure on the exchange rate.

The cost of adjustment: 60% poverty and 20% declines

The other side of the balance has equally striking figures. The economy contracted with the shock, and a segment of economic analysis emphasizes that 60% poverty and declines of 20% in industry, construction, and commerce are not a success headline. The most repeated objection points out that inflation has improved compared to the inherited situation, but it is not better than in previous government stages, and that what has truly plummeted is GDP, consumption, and the standard of living.

The official defense is counterfactual and, therefore, unprovable: without the adjustment, social deterioration would have been much greater. It is also argued that much of the increase in poverty is explained by the dismantling of public employment and subsidies, meaning people who cease to be counted as employed or stop receiving transfers. In economics, scenarios that did not happen are not measured.

90% of taxes: what it exactly means

The star announcement of the second phase is fiscal, and precision is needed here because the difference is significant. The promise is to reduce 90% of the taxes, not to reduce taxes by 90%. That is, it affects the number of levies intervened, not the revenue collection by that proportion. With a regulatory maze like Argentina's, cutting administrative figures may be more cosmetic than effective relief in the pocket.

The margin is narrow. Maintaining public surplus is the condition supporting market confidence in Argentine finances, and the Government itself admits caution when speaking. Cutting taxes without touching spending is easy to announce and very difficult to sustain over time.

Rentals: 50% lower prices and 170% more supply

Among the deregulation measures, the liberalization of the rental market shows the best data. The numbers discussed point to a 50% drop in rental prices and a 170% increase in housing supply. If sustained, it contradicts one of the most entrenched beliefs among regulators: that intervening in price is the way to protect the tenant. Here, removing the cap lowered prices and brought housing back.

The peso, bonds, and dollars leaving

The financial front has changed mood. Argentine sovereign bonds have tripled since Milei took office, and the interest they pay in the market has fallen sharply. The peso, which the president himself called excrement during the campaign, strengthened in the informal market to trade, for a few hours, above the official rate, something manuals do not contemplate.

Not everything goes in the same direction. Dollar deposits have fallen again: in four months, almost 20% of the cash that entered with the amnesty program has left. And banks return to short-term gambling: they buy LEFI again, and the stock reaches highs. Full dollarization, however, still lacks parliamentary majority and has doubts about its constitutional fit.

Two Latin American experiments and the echo in Europe

While Argentina adjusts, El Salvador of Nayib Bukele appears as the other case that orthodoxy deemed failed but has ended up working in the indicators. The comparison is uncomfortable in Berlin, where liberal leader Christian Lindner has reoriented his party toward that script after breaking the coalition with social democrats and greens, and where much of the press dismisses the shift with the same argument launched against Milei.

The closing is arithmetic of the calendar. Argentina has accumulated decades of disaster, and no serious person claims this can be fixed in one term: some calculations say it will take eight years. Inflation has fallen, the deficit has closed, and the economy is growing again. Whether this translates into fewer poor people is the part that still has no signature.