Analysis of the Results of Shock Therapy Reforms in Argentina

In this regard, it is interesting to analyze the Argentine experience in the 21st century. Perhaps Russian economists are mistaken, and greater attention should be paid to market fundamentalism. Let us attempt to verify the results of Milei’s reforms—especially since in December 2026 these reforms will mark three years.

On the surface, our transatlantic counterpart appears to have been more successful. Thus, despite corruption scandals and economic problems, Milei’s Freedom Party achieved a decisive victory in the parliamentary elections—without shelling the parliament building with tanks and heavy artillery—and the president needed only to brandish a chainsaw to intimidate his opponents.

During the opening of the new parliament on March 1, 2026, the President of Argentina, in an official address to the nation, stated that the country stands on the threshold of new achievements and great hopes for the future. Now, thanks to a parliamentary majority, Milei will be able to advance his liberal reforms more decisively, aiming to strengthen the national currency, build up foreign exchange reserves, eliminate inflation, increase employment, and attract foreign investors.

However, the main problem and question remains whether the economy is generating a sufficient number of quality jobs. Despite initially lacking a parliamentary majority, Milei’s government managed to push through almost its entire political agenda. For example, a budget reform was carried out, a law lowering the age of criminal responsibility was adopted, and a trade agreement with Europe was signed. One of Milei’s most notable achievements was the new labor legislation, which the Peronist parliamentary faction had strongly opposed.

Argentina’s labor legislation dates back to the 1970s and had become so outdated that more than 40% of Argentines were working in the informal sector, which is effectively disconnected from compliance with the law. The new reform reduced the share of informal workers and lowered companies’ hiring costs under the old rules. The new labor legislation addressed tax compliance and mandatory health insurance. Such liberalization may, in the future, contribute to a boom in formal-sector employment and accelerate long-standing court proceedings. It has become easier for companies to dismiss employees. The reform also helped resolve conflicts related to workplace injuries. According to Argentina’s National Public Opinion Research Center, the country’s level of workplace injuries is roughly comparable to that of Spain, yet Argentina has twelve times more litigation in such cases. The labor reform also granted authority to negotiate wages at the regional and intra-corporate levels.

Thus, participants in the new labor relations system no longer need to rely on national wage agreements or consult the federal center on this issue. Companies can now settle wage arrears in accordance with a clearer assessment of labor costs in a specific region of the country. The Peronist Party argues that this law sets Argentina back several decades, potentially leading to waves of layoffs and wage declines.

For foreign investors and the IMF, the exchange rate of the national currency remains a serious issue, as they require guarantees of loan repayment in dollars. In 2025, the Argentine government was forced to use its foreign currency reserves to support the peso. In January–February 2026, Argentina’s Central Bank purchased $2.7 billion in foreign currency, which was used to refinance a large public debt. Argentina services its external debt at rates typical for developing countries. It will take years before Argentina attains a higher credit rating that would allow it to borrow externally at more favorable rates. This will depend on its ability to accumulate foreign exchange reserves.

In 2025, Milei depleted foreign currency reserves to maintain a strong peso in order to curb inflation. Reserves will grow only if the country transitions to a more flexible exchange rate regime. In 2026, the fluctuation band of the peso was widened, enabling the central bank to reduce the frequency of currency interventions. The strong peso partly reflects the decline of the U.S. dollar against a basket of leading world currencies. In addition, the central bank is pursuing a tight monetary policy, and high interest rates on peso deposits encourage savers to hold funds in the national currency. Capital controls also remain in place, limiting companies’ ability to move dollars out of Argentina. Nevertheless, a fully free exchange rate regime—promised by Milei at the beginning of his presidency—has not yet been achieved, since that would require lifting all restrictions. This, in turn, could trigger an uncontrolled sell-off of pesos for dollars and destabilize the country. Therefore, domestic interest rates remain high, slowing investment activity.

This situation creates challenges for businesses. Moreover, a strong peso makes exports more expensive, reducing the competitiveness of Argentine goods on the global market. Yet this appears to be the price Milei is willing to pay to fulfill his promise of price stabilization. He continues to regard inflation control as the main achievement of his liberal reforms. Monthly inflation reached 2.5% in May 2025. Afterward, the central bank slightly loosened policy, and by January 2026 monthly inflation had risen to 2.9%, or 32% annually.

The Milei government emphasizes that the economy is growing. To stimulate growth, Milei eliminated a significant share of administrative barriers at customs and reduced the effective import tariff. However, industrial production continues to perform poorly due to the protectionist policies of previous governments and remains at a low level. Growth has occurred in less labor-intensive sectors and therefore does not reflect an increase in formal employment. Consequently, the labor reform will not quickly solve the problems of the shadow economy, double bookkeeping, and “off-the-books” wages. The coexistence of “black” and “white” wages—typical of Russia in the 1990s—reflects companies’ attempts to evade taxes. Thus, middle-income voters, who actively supported Milei in the October 2025 parliamentary elections, are dissatisfied with the labor market situation. Public discontent was manifested, for example, in a nationwide general strike. Yet it did not significantly hinder the reforms, although trade unions are using litigation to partially block them. Despite this, the provinces continue to support Milei. He may lose their trust only if the economic situation deteriorates.

Public opinion polls show that voter priorities are beginning to shift. Whereas inflation was the main concern at the start of Milei’s presidency, unemployment has now risen to the top of Argentines’ list of worries. Broad liberalization has allowed Argentines to purchase cheaper imported goods, opening the economy to the outside world and increasing competition. If the workforce, under competitive pressure, moves toward the periphery where the oil industry is concentrated, a labor shortage could emerge in the capital region. This shift could become a painful factor in Milei’s reform path, and his political future may change as rapidly as the speed, quality, and nature of fulfilling his campaign promises—low inflation, decent wages, foreign investment, large foreign exchange reserves, and employment growth. The Russian government faltered in advancing liberal reforms and, after the 1998 default, was forced to change its political course.

Perhaps a similar default in Argentina could lead to Milei’s removal and the return of Peronist policies. However, for this to happen, the United States would need to stop supporting Argentina through dollar credit lines and purchases of Argentine government bonds. As long as the Trump Administration continues such support, there will be no default in Argentina, and Milei will continue his radical reforms. In the long run, the liberal market will redistribute national income in favor of the wealthy, intensify inequality, inflation will continue eroding the real wages of the middle and lower classes, and prosperity will largely be confined to the capital region, the oil industry, and enterprises close to the president’s circle, with a growing tendency toward corruption.

Author: Doctor of Economics, Associate Professor, Professor of the Department of World Economy and World Finance under the Government of the Russian Federation Mikhail Vyacheslavovich Zharikov.