Milei and Argentina's Shock Therapy 2023: hyperinflation, devaluation, and the pact with markets
How libertarian president Javier Milei tried to save Argentina from 211% inflation with unprecedented radical measures
In December 2023, Milei devalued the peso 50% on inauguration day. He cut the deficit. Monthly inflation reached 25%. But financial markets reacted positively. An extreme economic experiment.
Argentina in 2023
When Javier Milei won the Argentine presidential election in November 2023, the country was in critical condition: 211% annual inflation (the third-highest in the world), negative foreign exchange reserves (the central bank had hidden debts), official vs. black market exchange rate with a 100% differential.
Inauguration day
On December 10, 2023 — first day as president — Milei announced radical measures:
- 54% devaluation of the peso on the official exchange rate
- Cut of 18 of 18 ministries (9 remained)
- Reduction of energy subsidies
- Cessation of all "monetary issuance"
The market reaction
Paradoxically, financial markets reacted positively to the devaluation — which is normally a catastrophic event. Argentine dollar bonds rose, the Argentine stock market (in dollars) rose 40% in the following months. Investors read the shock therapy as fiscal credibility.
- Planned devaluations can be welcomed positively if they increase credibility: markets rewarded the devaluation because it was part of a coherent plan.
- 200% inflation requires extreme measures: normal medicines don't cure hyperinflations.
- Short term and long term dissociate in radical transitions: the immediate cost (even higher inflation) is the price of future stabilization.