Bold, like an Argentine

In the 1890s, the French had a pithy expression to describe someone who was truly wealthy: “Riche comme un Argentin.”

Rich like an Argentine.

To the modern ear, that expression seems nonsensical, or perhaps a darkly comic reference to a country plagued by economic and political upheaval for generations. But in the closing years of the 19th century – and well into the 20th – Argentina was a prosperous nation, its economy outstripping France, its former colonial overlord, Spain, and rivalling that of Canada.

“Riche comme un Argentin” was no joke, but a nod to the wealthy landowning class of the South American country, which benefitted greatly from rich agricultural land that formed the basis of the country’s post-independence economic surge.

Today, however, Argentina is no land of riches. Decades of political instability, fiscal recklessness and military dictatorships have taken a predictable toll on the economy. Juan Perón, the army colonel turned leftist populist, and the Peronist movement that still bears his name played a prominent role in that decline, starting in the mid-1940s.

But the Peronists are only part of the picture. Governments whipsawing from left to right, interspersed with juntas, fatally undermined the stability needed for economic growth. By 2023, inflation was soaring into triple digits even as the Argentine economy tanked.

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Enter Javier Milei, a populist libertarian elected as President in November, 2023, with a promise of radical reform to cure Argentina of its long-standing economic ills. Mr. Milei’s aggressive pro-market reforms have, so far, succeeded.

But Argentina has been down this road before, with promising economic and fiscal reform collapsing and Peronist politicians reversing any gains.

The question for Argentina, then, is whether Mr. Milei’s reforms – and Mr. Milei – will have staying power. And the answer should interest Canadians, as this country struggles to implement the kind of sweeping reforms that the Argentine President is championing.

A historic divergence

For a time, Argentina’s history mirrored that of Canada: the opening of vast agricultural lands, enabled by immigration, that supercharged economic growth. But only for a time.

The paths of the two countries start to diverge by the mid-1930s, as this first chart shows.

In 1935, Argentina (then in the fifth year of the first of a series of military dictatorships) still had per-capita gross domestic product roughly equal to Canada’s. Since then, Canada has pulled away steadily. By 2022, Argentina’s real per capita GDP was barely 40 per cent that of Canada.

Argentina’s real GDP per capita peaked in 2011, at $20,003 (based on 2011 prices in U.S. dollars). The economy has sputtered since, never exceeding that level. By contrast, Canada hit that level of GDP per capita in 1971 – and had more than doubled by 2022.

Canadians have lately been (rightly) concerned about stagnating GDP per capita, and the long-term threat to prosperity that such stagnation poses. Argentina’s experience is a case in point – a warning of the social, political and economic costs.

Both countries had abundant agricultural and mineral resources. The difference came down to politics, policy and institutional stability. The early years of the Peron government in the 1940s set the pattern for the decades of economic decay that followed: big increases in public spending to boost the working class, protectionist policies to then shield firms with unwieldy payrolls, and then accelerating inflation and debt that eventually led to a crash. Ineffective attempts at reform would be followed by a new round of Peronist economic malpractice.

Mr. Milei’s election in 2023 could be seen as part of that pattern. But the newly elected President sought to distinguish his program from the failures of the past in his inaugural speech in November of that year. “The Argentines have overwhelmingly expressed a desire for change from which there is no return,” he said, later adding, “It will not be easy, 100 years of failure cannot be undone in one day, but one day begins and today is that day.”

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The quick cut of chainsaw economics

What has followed was a radical program reminiscent of the shock-therapy reforms of Eastern Europe after the fall of the Berlin Wall. Or, as the Milei government likes to call it, a chainsaw approach.

Tens of thousands of civil servants have been fired, and ministries merged. Government spending has been slashed, including subsidies to business.

Breaking with the nationalist and protectionist policies of the Peronists, the Milei government has set up the Large Investment Incentive Regime, long-lived tax breaks for firms that invest at least US$200-million. (Those incentives are proving attractive to foreign firms, including Vancouver-based Lundin Mining Corp., developing a copper mine in the country in conjunction with Australia’s BHP Group Ltd.)

The buzziest part of the chainsaw, however, has been the Milei government’s aggressive push to clear away the thicket of regulations choking Argentina’s economy through a series of decrees. The Fraser Institute’s economic freedom ranking, based on 2023 data, placed Argentina at 159th out of 165 countries, beating out only a handful of deeply dysfunctional states. (Canada tied for 11th spot.)

Rent controls and other price controls were abolished. Import controls were scrapped. Cabotage, allowing foreign airlines to fly domestic routes, was introduced. The rules for state-owned firms were rewritten; no longer will they be protected from bankruptcy.

A critical move came last month when the Milei government secured legislative approval for new and wide-ranging labour reforms. That victory was significant not just because of the scope of the changes, but also because the administration had gotten legislative approval rather than simply issuing a decree.

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And that legislative victory was made possible by another key moment last fall, when Mr. Milei’s party, La Libertad Avanza (Freedom Advances), scored big gains, with 40.66 per cent of the vote, well ahead of the Peronista opposition’s 33.7 per cent.

Mr. Milei’s party and its legislative allies still don’t have a majority in either the senate or lower chamber. But they have momentum – and control of more than a third of senate seats, enough to head off any impeachment effort and to prevent presidential vetoes from being overridden.

Much has been made of U.S. President Donald Trump’s intervention in the election by propping up the Argentine peso ahead of the vote. Undoubtedly, a currency crisis would not have helped Mr. Milei’s electoral prospects. But the contention that Mr. Trump is solely responsible ignores the plain facts: Mr. Milei’s shock therapy, although painful, is working.

Lots of shock, but how about the therapy?

Mr. Milei came to office promising to take a chainsaw to government spending. He has delivered, as this second chart shows. Within a single year, his government moved from net borrowing of 5.3 per cent of GDP into the black. Even Canada’s most aggressive fiscal program in the 1990s did not pull off a turnaround that quickly.

There’s been a similar turnaround in inflation, which has plagued Argentina for decades. Canadians were shaken when inflation surged earlier this decade, peaking at 8.1 per cent in June, 2022. Imagine, then, the stresses in Argentina, where inflation had surged to 211 per cent as Mr. Milei took office.

As this next chart shows, inflation is retreating (although still at levels that would appall Canadians). But the International Monetary Fund is forecasting that inflation will drop under 8.5 per cent next year and keep on falling. If the IMF is correct, that sustained drop in inflation would mark a radical break with Argentina’s inflation-ridden past.

By itself, that would be an impressive accomplishment. But the Milei administration is also on track to break the boom-and-collapse economic cycle in Argentina. Take a look at this third graphic, of Argentina’s real gross domestic product growth, and two things jump out.

First, there are the massive swings from expansion to contraction over the last 45 years, a pattern that has accelerated in the last decade. Second, that see-saw pattern looks to be ending: the IMF is forecasting sustained economic growth for the rest of the decade. So far, that is mostly a prediction. But Argentina’s real GDP did grow by 4.5 per cent last year, twice as fast as neighbouring Brazil.

One thing is for certain: Mr. Milei’s austerity program has not resulted in economic contraction, despite the warnings of his critics.

Critics of the Milei government are also quick to point out the impact of his cutbacks on poverty, already endemic in Argentina. And it is true that, early on, poverty rates did rise somewhat, as this next chart shows. (One of the measures of poverty used in Argentina is the proportion of households with income less than half that of the national per capita median.)

But the spike in the first quarter of 2025 simply returned the proportion of poor households to the same level as the third quarter of 2023, just before Mr. Milei took office. Since then, that official measure of poverty has declined.

The Gini coefficient is a broader measure of income inequality; the closer a country scores to 0, the more equal its income distribution. The data for Argentina show the same pattern as the household income measure: an initial bump in the early days of Mr. Milei’s reforms, followed by a decline.

By the end of the third quarter of last year, Argentina’s Gini coefficient had fallen to 0.431 – lower than when Mr. Milei took office. (Canada’s own Gini coefficient is much lower.) Undoubtedly, some Argentinians have seen their fortunes decline in the last two years. But as a whole, income inequality is, ever so slightly, less pronounced than when Mr. Milei’s revolution began.

Success, but can you keep it?

Argentina has been at this juncture before, with free-market reforms showing promise, only to collapse as public support withered. That has not yet happened with Mr. Milei; last fall’s legislative gains are a sign that his economic program may have staying power.

But his political coalition is sporting self-administered bruises. There are allegations of corruption, a perennial problem in Argentine politics. Mr. Milei is anything but a consensus builder, telling the Peronist opposition in a speech earlier this month that “I love making you cry.” More ominously, some of his political allies have sought to downplay the crimes committed during the Dirty War, when an estimated 30,000 Argentinians were killed by the military dictatorship.

If Mr. Milei wants his reforms to endure, he needs to expand his electoral reach. Relitigating the past crimes of the junta is not the path to a broader electoral coalition that rolls back the influence of the Peronist opposition.

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Lessons from a revolution

Canada is not Argentina. This country faces plenty of economic challenges, but none of them are on the same scale. Canada’s per capita GDP has been stagnating for the last eight years, not the last 80.

But, Argentina was also not always Argentina, or at least was not always the economic basket-case of recent history. It took decades of demagoguery, political cowardice and economic self-sabotage to pull off the unprecedented feat of turning a prosperous developed wealthy country into a failing state. Every year, the pain needed to turn things around grew a little. Every year, the price of inaction increased.

That price will grow for Canada in coming years. According to the Organization for Economic Co-operation and Development’s most recent projections, Canada’s real GDP per capita, adjusted for price level differences, will expand by a compound annual growth rate of 1.07 per cent through to 2040. Argentina’s, on the other hand, is forecast to grow nearly twice as fast, by 2.12 per cent – an inversion of the historical divergence of the 20th century.

That is the first lesson that Canadians can take from Argentina. Every delay in dealing with this country’s overregulation means the corrective will be that much more painful. Every year lost in returning to fiscal discipline will make the resulting cuts that much deeper.

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The second lesson is: boldness carries the day. Mr. Milei’s program has been both wide-ranging and fast. That has left his political opponents off balance. There is a military precept that those who defend everything, defend nothing. Mr. Milei has thrust his opponents into that strategic dilemma by pursuing change on a broad front.

At the same time, the broad-front approach has meant that those who lose special protections are seeing gains at the same time. Businesses have lost subsidies and protection from foreign and domestic competition. But they have also gained from their suppliers also being forced to compete. And taxes have come down. Meanwhile, ordinary Argentinians who might have been upset by corporate tax breaks can plainly see that the Milei administration is cutting off cronyism at the source.

The contrast with Canada couldn’t be clearer. Here, the most tepid of reforms – say, a gradual and partial rollback of the bloated federal civil service through attrition and early retirement – results in howls of protests from unions and a rolling parade of unfavourable headlines. Modest regulatory changes by the provinces to ease non-tariff trade barriers are stopped in their tracks by entrenched interests.

The lesson that Canadian policy makers should take from Mr. Milei’s success is this: They should be bold. Bold, like an Argentine.

The Sunday Editorial