Argentina's "Chainsaw Policy": A Comprehensive Research-Analysis Report on Javier Milei's Economic Reforms
- Nishthi Bhatia
- Aug 6
- 8 min read
1. The Genesis
Traditionally known as the land of silver, Argentina has struggled with an unstable economic environment defined by boom and bust, chronic inflation, and periodic financial crises. This instability and the necessity for stabilisation resulted in Javier Milei's election as President in 2023, with a straightforward charge to combat inflation and restore the country's economic vitality.
1.1 Argentina's Economic Crisis Pre-Milei
Persistent fiscal deficits and inflation for decades have plagued the country. In 2023, the nation recorded one of the highest inflation rates globally, soaring to approximately 211%. It has been as high as about 190% between 1944 and 2022, along with continuously running fiscal deficits since 2009. Over the last decade, the country has witnessed a 10.4% fall in per capita income.
This has led to a decline in the value of the Argentine peso and put significant pressure on the official exchange rate. The policies implemented to prevent currency depreciation, like resorting to price and capital controls, quantitative import restrictions, and export taxes, have served as temporary solutions and led to the central bank’s balance sheet deterioration. Investment has only grown at a rate of 1.1% between 2011 and 2023, and according to World Bank data, credit to the private sector by banks was only 10.7% in 2022, which is much less compared to about 47.4% in Latin America and the Caribbean.
Despite all the hardships, the Argentine economy still has the potential to proliferate. Milei's victory in the 2023 Presidential elections is not just a new president but a demand for radical change. His "chainsaw policy" was not an empty campaign slogan, but a reaction to the people's most urgent need—hyperinflation—and their frustration with systemic failures.
1.2 Core Philosophy and Objectives
Milei's "chainsaw policy" crux is a radical libertarian economic philosophy. Upon taking office, he explicitly stated that inflation was his top priority. His plan extends beyond mere fiscal adjustments, aiming to expand market freedoms, liberalise trade, and implement dollarisation, which means adopting the U.S. dollar as the national currency.
Milei's approach is identified as "shock therapy," a method historically used by various countries to transition from planned to market economies. This involves minimising state intervention, privatising state-owned assets, and sometimes raising taxes to achieve fiscal balance. This highlights that Milei's policies are not merely a response to Argentina's economic crisis but are explicitly derived from an ideology.
This suggests that the "chainsaw policy" aims to provide a permanent solution instead of temporary fixes. Just like a coin with two sides, this policy has its cons. It also needs to consider the practical consequences and the resistance from the general public. For instance, the objective of dollarisation is a prime example of a policy with significant debates regarding its feasibility and long-term effects.
2. Policy Implementation
The most immediate effect of the “Chainsaw” policy has been the downsizing and deregulation. In the first year, the President reduced the number of ministries from 18 to 8. He also fired 37,000 public employees, abolishing about 100 secretariats, subsecretariats, and more than 200 lower-level bureaucratic departments. This depicts a 1.1% decrease in public employment.
According to the data from Ministerio de Economía (2025) and INDEC (2025), there has been a significant dip in the public sector wages and pensions. The government decreased their capital expenditure by 77.2% in 2024 to adjust for adjusting inflation. Subsidies to the provincial government and Buenos Aires Metropolitan Area (AMBA) were reduced substantially, which affected the cost of the services they provided, like transportation.
Energy subsidies were significantly reduced by about 34%. Public transfers to universities fell by 25.5% in real terms in 2024, while public expenditures on research were cut by 31%. The loss of 9% of the workforce by the National Council of Scientific and Technical Research (Argentina’s primary science agency) has led to a growing brain drain as researchers and academics seek opportunities abroad amid the tight job market.
The President has aggressively pursued deregulation. According to a report by Columnist Ian Vasquez, Millei implemented about two deregulations per day in the first year. The deregulations have been implemented in different sectors of the economy, ranging from agriculture to transportation. The Ministry looks at the prices to identify the regulatory burden. If a reasonable service costs significantly more in Argentina than internationally, the high price differential is attributed to the regulatory matters. There have been some significant changes in terms of inflation and price control as well. Price controls on essential food products and medicines were removed, increasing their cost by 40%, making them highly unaffordable. Due to this, there has been a 45.8% decline in pharmaceutical sales in January 2024 compared to January 2023.
3. Outcomes of Milei’s Shock Therapy
Despite the initial social disruption, the “Chainsaw” policy has achieved several outcomes, particularly in its first few months.
3.1 Fiscal Balance Improvement
The government achieved Argentina's first budget surplus in 12 years, totalling $589 million in January. The government successfully transformed a 4.4% deficit into a small surplus. The budget achieved a surplus of 0.3% of GDP for the first time in 14 years.
3.2 Addressing Inflation
The annual inflation rate peaked in April 2024 and began to decline, reaching 117.8% by December 2024. By the end of the year, the monthly inflation rate stood at 2.7%. However, despite the progress, Argentina’s annual inflation remains among the highest in the world, and there is a long way to go in this field.
3.3 Expanding market freedom
Thirdly, this has led to the implementation of 672 regulatory reforms, with 331 eliminated and 341 modified. These reforms were explicitly aimed at reducing burdens on new and existing businesses. The different policies for liberalising trade, like reducing or eliminating import licenses, removing commercial airline restrictions and reducing export taxes on agriculture, indicate that Milei’s policy pays attention to macroeconomic factors and focuses on the long-term vision for economic growth.
4. Societal and Economic Challenges
4.1 Economic Contraction and Upsurge in Unemployment.
The economy experienced a significant slowdown in 2024, with Real GDP for the first three quarters being 3.0% lower than in 2023. Unemployment also rose to 6.9% in Q3 2024. The gender inequality in unemployment has affected women more, with their unemployment rate increasing from 6.3% to 7.9%, compared to a rise from 5.3% to 6.2% for men. The shrinking public sector is often characterised by an increase in informal employment. During this period, the share of self-employed workers in total employment grew from 21.6% to 223.3%, reflecting the expansion of informal employment.
4.2 Public Services and Infrastructure
Real value added in public education and public social and health services declined by 18.1% and 19.5% between quarters 3 of 2023 and 2024. There is expected to be hindered economic growth, increased labour costs, and undermined Argentina’s competitiveness due to reduced investment in physical and social infrastructure. This indicates a clear trade-off where immediate fiscal balance is prioritised over the foundation of long-term economic growth and social development.
4.3 Declining Wages and Rising Poverty
During the first year of the Presidency, real wages fell by 2.6%. According to the latest data from Argentina’s national statistical institute (INDEC), the poverty rate increased from 42.5% in the second half of 2023 to 52.9% in the first half of 2024.
4.4 Opposition and Social Unrest
Apart from all these risks and costs humans had to bear, the measures have seen opposition and faced social unrest from the general population. There have been weekly marches protesting against spending cuts for retirees. Violent clashes have occurred between protesters and security forces, leading to injuries. Warnings have been issued on public transport, indicating that police would use force to clamp down on any protests.
5. Applicability to Other Nations (Bigger/Smaller Countries)
Milei's "chainsaw policy" applicability to other nations is complex and highly varies from country to country. While the IMF supports Argentina's fiscal adjustment, it also urges Milei to ensure that budget cuts "do not fall disproportionately on working families." Given Argentina's history of controversial programs, it is a difficult position for the IMF to take, but it recognises Milei's "proven commitment" to fiscal consolidation. However, considering this policy for other countries, the IMF's stance signals a preference for fiscal responsibility and a need for social equity.
For these reforms to sustain growth, private investment has to "kick in to support employment and growth. Yet an overvalued exchange rate could reduce Argentina's attractiveness as an investment avenue, allowing inflation to rear its ugly head again. There's also the uncertainty about Argentina's growth potential, even under the best-case reform scenario, and the severely limited options for debt restructuring. Market investors, "often burned in the past," could be reluctant to push money in quickly.
Conclusion
President Xavier Millis' "Chainsaw Policy" represents an adventurous and unprecedented attempt to reshape Argentina's economic scenario. Crushed by a popular mandate to address a radical liberal ideology, chronic hyperinflation, and fiscal mismanagement, the administration has achieved remarkable success in curbing inflation and converting a deep budgetary deficit into a surplus. These achievements have significantly increased international confidence and gained financial support from the IMF and other global institutions.
However, the implementation of this "shock therapy" has come at an intensive and immediate social cost. Rapid and comprehensive cuts have pushed an economic contraction, increasing unemployment, and severely eroding real wages and purchasing power, leading to increased difficulty and poverty. A massive decrease in public services, especially in education, healthcare and infrastructure, represents a significant disinvestment in the country's human capital and long-term productive capacity, which increases concerns about future competition and development. Comprehensive social disturbance and frequent legal challenges underline the underlying stress between significant public resistance and rapid, top-down reforms and democratic processes.
Transferring experience to other countries, such as Argentina, is fine. While the "shock therapy" model has historical examples, its success and stability are highly contingent on unique national references, including the severity of the previous crisis, the degree of public tolerance for difficulty and the political will to navigate the protest. The Argentine case shows that while radical measures can provide immediate macroeconomic stabilisation, they generally involve high social costs while leaving difficult questions about equity and long-term societal welfare. The longevity of Milei's reforms will largely depend on the administration's ability to navigate the structural challenges, deal with social discontent, and focus on track record, evidenced not only in headline figures but by tangible improvements in the lives of all Argentines.
REFERENCES:
Aberdeen Investments. (n.d.). Has Javier Milei's shock therapy worked for Argentina? Retrieved from https://www.aberdeeninvestments.com/en-my/investor/insights-and-research/has-javier-mileis-shock-therapy-worked-for-argentina
Americas Quarterly. (n.d.). Javier Milei has surprised almost everybody. Retrieved from https://www.americasquarterly.org/article/javier-milei-has-surprised-almost-everybody/
Atlantic Council. (n.d.). Argentina needs reforms even more than the IMF's money. Retrieved from https://www.atlanticcouncil.org/blogs/new-atlanticist/argentina-needs-reforms-even-more-than-the-imfs-money/
Bruin Political Review. (n.d.). Milei's shocks: Perfect therapy for the Argentine economy. Retrieved from https://bruinpoliticalreview.org/articles?post-slug=milei-s-shocks-perfect-therapy-for-the-argentine-economy
Cato at Liberty Blog. (2025, March 27). Javier Milei and the legitimacy of libertarian policy. Retrieved from https://www.cato.org/blog/javier-milei-legitimacy-libertarian-policy
Freiheit.org. (2025, March 31). Argentina economic political conditions leading to Milei's policies. Retrieved from https://www.freiheit.org/one-year-javier-mileis-economic-policy
Human Rights Research. (n.d.). Have Javier Milei’s austerity policies negatively affected the Argentinian economy? Retrieved from https://www.humanrightsresearch.org/post/have-javier-milei-s-austerity-policies-negatively-affected-the-argentinian-economy
Oxfam. (2013, September 12). The actual cost of austerity: How cuts hurt the poor and increase inequality. Retrieved from https://www-cdn.oxfam.org/s3fs-public/file_attachments/cs-true-cost-austerity-inequality-uk-120913-en_0.pdf
Prime Economics. (2025, March 13). Argentina's economic shock therapy: Assessing the impact of Milei's austerity policies and the road ahead. Retrieved from https://primeeconomics.org/articles/argentinas-economic-shock-therapy-assessing-the-impact-of-mileis-austerity-policies-and-the-road-ahead/
ROAPE. (2025, January 8). Debt and austerity: The IMF’s legacy of structural violence in the Global South. Retrieved from https://roape.net/2025/01/08/debt-and-austerity-the-imfs-legacy-of-structural-violence-in-the-global-south/