Argentina Took a Chainsaw to Its Economy. It Now Needs US Help

Argentina’s economy, recently hailed by some as a poster child for radical free market reform, now finds itself seeking American goodwill to navigate its latest crisis.

Since December 2023, the country and its economy have been overseen by President Javier Milei, a leather jacket-wearing supporter of free-market capitalism, who swept into power on a platform of price stabilization, debt reduction and paring down what he called a bloated state.

The eccentric Milei brandished a chainsaw during his campaign—symbolic, he said, of a ruthless desire to slash both public spending and federal bureaucracy.

After years of inflationary chaos had severely crippled South America’s second-largest economy, Milei’s approach romanced the markets. Argentina’s Merval index gained around 170 percent in peso terms in 2024, making the S&P 500’s 23-percent gain seem paltry by comparison. The international community took notice as well, with President Donald Trump lauding the Argentine president.

Milei—whom Trump has previously dubbed his “favorite president”—was the first foreign leader to meet the president after his victory over former Vice President Kamala Harris, and the Argentine’s radical reforms have been viewed as the inspiration for Elon Musk during his time as symbolic chief of the Department of Government Efficiency (DOGE).

A Costly Economic Correction

Handling inflation has been Milei’s crowning achievement, with the monthly rate now sitting at 1.9 percent as of August, compared to 25.5 percent the month he took office.

But despite this, and Milei’s cost-cutting moves helping to bring the country’s budget back into surplus, Argentina once again finds itself in economic turmoil. The currency is under attack, foreign reserves are dangerously low, and the country’s benchmark index has now fallen over 30 percent in the year-to-date.

Experts explain that the current woes stem from both structural issues and contemporary triggers.

“The main problem is that Argentina has a large welfare state given the size and level of development of its economy, and a highly distorted tax and transfer system that funds it,” said political economist Jean-Paul Faguet. “It only manages to remain stable during good times; a bad international economy or specific international shocks throw it out of kilter and into crisis.”

Anahí Wiedenbrüg, senior policy adviser at the International Institute for Sustainable Development, told Newsweek that Milei’s “main political achievement” has been bringing down Argentina’s runaway inflation, but that this “has come at a steep cost.”

“In Argentina, fiscal consolidation has historically fallen disproportionately on the most vulnerable: Cuts to social spending, reductions in transfers to provinces, and an erosion of real wages,” she said. “Far from correcting structural asymmetries, these adjustments tend to deepen them.”

“The government was driven by the desire to maximize the speed of reduction in inflation because it believed this was the key to winning the national midterm elections in October,” said Paul Segal, professor of economics at the IAE Business School in Argentina. “But most economists were aware that this economic regime was fragile.”

“So in September we had low inflation and a cheap dollar, but a fragile regime that everyone knew was vulnerable to any economic or political shock.”

This shock came in the form of a crucial provincial election in Buenos Aires, in which Governor Axel Kicillof’s centre-left Fuerza Patria coalition triumphed over Milei’s Alianza La Libertad Avanza.

The reasons behind the upset, according to Segal, included the deteriorating outlook for Argentina’s economy, “public distaste for the depth of the fiscal cuts,” as well as a scandal involving Milei, his sister and the alleged embezzlement of public funds.

“The provincial election of the province of Buenos Aires gave a clear signal that the ‘honeymoon phase’ that Argentine citizens gave to Milei is over,” said Wiedenbrüg.

America to the … Rescue?

With both the economy and Milei’s chances in the upcoming legislative election now hanging in the balance, America has come in with an offer of fiscal—and symbolic—support.

Speaking with Milei on the sidelines of the United Nations General Assembly on Tuesday, Trump said that while he did not believe Argentina needed any outside assistance, the U.S. was more than willing to help the country secure “all of the things that you need to make Argentina great again.”

On Wednesday, Treasury Secretary Scott Bessent praised the “important strides” Milei had taken toward stabilizing the economy, and said that the U.S. stands ready to purchase its dollar-denominated bonds and is in negotiations to extend the country a $20 billion swap line—a currency-exchange agreement that could keep the economy stable in the short term.

“I will be watching developments closely, and the Treasury remains fully prepared to do what is necessary,” Bessent posted to X.

“Thank you, President @POTUS and Mr. Secretary @SecScottBessent, for your firm support and confidence in the Argentine people,” Milei wrote in response. “We deeply value the friendship with the United States and your commitment to strengthening our partnership on the basis of shared values. Together we will build a path of stability, prosperity, and freedom. MAGA!”

Trump and Bessent’s commitments appear to have injected some short-term energy into Argentina’s economy, Reuters reports, with investors already piling back into Argentine assets. But beyond the political stigma that may follow the antiwelfare Milei relying on foreign goodwill, experts believe this may only delay Argentina’s economic woes.

“National elections are due in October, and the benefits to the government of the financial support from the U.S. face the counterweight of the fact that support from the Trump administration may be very unpopular, and harm the government’s vote,” Segal told Newsweek.

“A U.S. bail-out will buy him time, but will not do anything for the underlying problems,” added Faguet. “In this sense, the US is like another naive foreign investor that stumbles in when all the locals are fleeing.”

Ernesto Talvi, senior fellow at the Elcano Royal Institute and Uruguay’s former Minister of Foreign Affairs, said Bessent’s offer of support, in essence, “replaces old debt with new debt to ease immediate pressures,” including the prospect of Milei’s defeat in the October midterms.

“But that alone is not enough,” he told Newsweek. “At a minimum, Milei must rebuild a working coalition to sustain fiscal discipline and advance his pro-growth reforms to unlock investment.”

Argentines head to the polls on October 26, with Milei’s party hoping to gain seats and strengthen its minority position.

Speaking at the United Nation’s General Assembly this week, Milei espoused the benefits of national independence and decried the “overreach” of such supranational bodies. But for Argentina’s economy, and his own political future, Milei may require a helping hand from one of his last remaining ideological and economic allies.

Read Newsweek’s full conversation with Ernesto Talvi, Senior Fellow at the Elcano Royal Institute and ex-Minister of Foreign Affairs for Uruguay, below:

Can you comment on the current State of the Argentine economy—currency, debt—and whether it is in an unparalleled crisis?

Argentina has been here before. Currency runs and sovereign debt selloffs are recurring features of its economic history. The crisis of the early 2000s was even worse, since it also triggered a full-scale run on the banking system.

How has Argentina ended up here and why has Milei’s free market revolution failed?

It is not a revolution—and it has not yet failed. The stabilization program agreed with the IMF is a classic one: sharp fiscal adjustment, tight monetary policy, elimination price controls, deregulation, and business friendly structural reforms to boost long term growth.

IMF support, through a large financing package, was meant to rebuild reserves and remove two obstacles seen as critical to attracting private investment: lifting the currency controls (the “cepo”) and regaining access to international bond markets. The first was achieved. The second, despite IMF backing, did not materialize.

Will Argentina need a U.S. bailout and will this actually solve its issues?

In essence, the U.S. bailout replaces old debt with new debt to ease immediate pressures: exchange rate instability, soaring country risk, and the prospect of a sharp defeat for Milei in the October midterms. But that alone is not enough. At a minimum, Milei must rebuild a working coalition to sustain fiscal discipline and advance his pro-growth reforms to unlock investment. Strategic investment, however, requires long horizons and credibility.

The lingering prospect of a Kirchnerist comeback in 2027, with a radically different economic model, is a major deterrent. Argentina needs—despite the bitter rivalry—a basic political pact between government and opposition on a core set of economic rules. Milei holds the upper hand, and he should take the initiative.