Argentine President Javier Milei has stabilized the macroeconomy and curbed the inflation spiral in record time, despite widespread skepticism. However, Milei’s deep austerity measures and strong free-market reforms have yet to deliver a robust recovery across all sectors of the economy. Manufacturing and construction remain stagnant, household debt has soared, and unemployment reached 7.9 percent in 2026.
These challenges have left Milei with his back against the wall. A recent public-opinion poll reported a 60 percent disapproval rate, while only 36 percent of respondents approved of his administration. Tensions with former allies—such as libertarian influencer Emmanuel Danann, a prominent figure in Milei’s 2023 presidential campaign—have also grown.
If Milei fails to broaden the benefits and address his wavering popularity before the October 24, 2027, election, the pendulum could swing back to Kirchnerismo. That movement has been central to Argentina’s economic decline in recent decades.
Stabilization Is Not Enough
When Milei took office in December 2023, Argentina faced a severe economic crisis. Monthly inflation had reached 25.5 percent, while the primary fiscal deficit stood at 2.9 percent of GDP and the overall fiscal deficit was 6.1 percent. Under Kirchnerismo, the state had relied on monetary issuance to finance public spending and support its exchange-rate manipulation.
Since then, Argentina’s macroeconomic indicators have improved. The monthly inflation rate in September was 1.9 percent. The government has also recorded primary and financial surpluses of 1.2 percent and 0.3 percent of GDP, respectively, so far this year.
Nevertheless, recent indicators have raised concerns about the strength of the economic recovery. In July 2026, economic activity fell by 2.9 percent compared with the previous month. GDP contracted by 0.6 percent in the second quarter of 2026 compared with the first quarter, despite growing by 2 percent year over year. In response, J.P. Morgan revised its 2026 growth forecast to 1.5 percent.
Although no official figures have been released yet, some analysts—such as economist Federico Gonzalez—anticipate additional declines. If GDP contracts for two consecutive quarters (seasonally adjusted), Argentina will enter a technical recession.
Manufacturing output fell by 2.7 percent for January to August 2026, when compared with the same period in 2025. Construction also registered a year-over-year decline of 4.4 percent in August, although output grew by 0.8 percent over the first eight months of 2026. Together, these sectors account for approximately one-quarter of formal jobs.
Poverty trends also raise concerns. This refers to households unable to afford the basic consumption basket each month. After falling to 28.2 percent in the second half of 2025—from 52.9 percent in the first half of 2024—the poverty rate rose to 32.3 percent in the first half of 2026. Household debt delinquency has also increased significantly. By August 2026, total delinquency across bank and non-bank credit providers totaled 18 percent.
According to the Social Debt Observatory of the Argentine Catholic University, 27.4 percent of urban households relied on loans or other forms of financing to cover routine expenses in the third quarter of 2025. Among households living in poverty, that figure reached 44.4 percent. While monetary stability can enable greater credit access, rising reliance on borrowing to cover basic expenses and increasing delinquency rates are cause for concern.
These indicators do not prove that Milei’s free-market reforms have failed. However, they suggest that macroeconomic stabilization alone cannot guarantee a sustained national economic recovery.
Growth Needs Diversification
In 2025, Argentina’s economy grew by 4.4 percent, mainly driven by energy, mining, and agriculture. The Vaca Muerta oil and gas formation has become a key engine of energy investment. To deregulate these sectors and attract investment, the Milei administration introduced RIGI (the Large Investment Incentive Regime). The program offers special conditions for major investment projects. As of October 2026, 25 approved projects represented approximately US$68.4 billion in planned investment. These projects could generate nearly 55,000 direct jobs. The pipeline of projects in evaluation could accentuate investment and broaden job opportunities.
For decades, dollar scarcity has fueled import restrictions, exchange-rate tensions, and crises. Expanding export capacity could help break this cycle. The government has also eased foreign-exchange controls and pursued reforms to the central bank as part of its broader strategy. These measures aim to strengthen Argentina’s credibility with investors and international financial institutions.
The risk premium, an indicator of how financial markets perceive sovereign risk, has stood at 700 basis points—34.4 percent lower than a year ago. However, the premium has increased more recently, rising from roughly 400 points in August 2026.
While enjoying thriving energy and mining exports and an appreciating peso, the International Monetary Fund warns Argentina could face Dutch disease if manufacturing keeps weakening. This phenomenon occurs when a boom in one sector hinders the competitiveness of other industries.
Decades of subsidies and trade barriers have shielded manufacturers from competition, often at consumers’ expense. Liberalization can encourage productivity and innovation, but lower taxes and easier formal hiring remain essential to a successful transition.
The Election Rests on Argentine Affordability
A June 2026 study by the free-market Reason Foundation and Liberty and Progress Foundation—titled Out of the Shadows: Tax Reforms to Formalize Argentina’s Underground Economy—argues that tax complexity and high labor costs encourage informality. According to the latest official figures, labor informality reached 45 percent in the second quarter of 2026, up 1.8 percentage points from the same period in 2025. The report proposes simplifying taxes by replacing the provincial gross receipts tax with a final-sales tax and gradually cutting VAT, income, and payroll taxes while preserving fiscal balance.
In his most recent speech, Milei argued that achieving a zero-deficit budget has allowed the government to stop competing with the private sector for credit. This reduces the risk of crowding out, a phenomenon in which government borrowing absorbs resources that would otherwise be available for private investment.
However, more efficient investment takes time to bear fruit. By pursuing tax reforms, more businesses could invest, compete, and create formal jobs. This would also expand the tax base and help sustain the zero-deficit policy.
Milei remains firmly committed to his economic model and argues that “Argentina is on track to experience a period of growth unlike anything the country has ever seen.” However, with the 2027 election approaching, defending macroeconomic achievements will not be enough. Milei must demonstrate that sacrifices for economic stabilization translate into greater purchasing power, more jobs, and better economic opportunities for Argentine households.
