Argentina Is on a Path to Economic Success.
By Nouriel Roubini
Heading into Argentina’s legislative elections this month, commentary about the country’s economic and financial prospects was growing increasingly pessimistic. With a significant amount of foreign debt coming due next year, the conventional wisdom was that an exchange-rate-based stabilization program – letting the currency depreciate by less than the inflation rate to push inflation down – had led to a massively overvalued currency and an external deficit that was bound to precipitate a crisis. But having written a book on currency crises in emerging markets, and having followed Argentine policies closely, I thought this consensus was far off the mark.
Breaking from the pattern of past failed economic-stabilization episodes – including those under previous Argentine administrations such as Carlos Saúl Menem (1989-99) and Mauricio Macri (2015-19) – Argentine President Javier Milei used his 2023 election victory to implement the strongest fiscal-austerity and structural-reform policies in the country’s history. In 2024, the primary fiscal adjustment (excluding interest payments) amounted to 5% of GDP, setting the stage for a strong economic rebound after some early softness.
At that point, the Argentine peso may have been modestly overvalued, given the lack of a fully flexible currency regime, but at least the current-account deficit was very small. If the country regained market access, it could roll over its looming external debt liabilities; and if electoral uncertainties could be overcome, Milei’s reforms and the country’s huge natural-resource endowments were bound to attract huge amounts of foreign direct investment (FDI) – possibly as much as $70 billion (including financing for a $25 billion OpenAI data center). Moreover, the inflation rate had already dropped dramatically from over 100% before Milei’s election to around 30%.
Read the full Project Syndicate article.
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Nouriel Roubini is a Professor Emeritus of Economics and International Business and the Robert Stansky Research Faculty Fellow.