Tangled Up in Blue: Evaluating Milei’s Macroeconomic Reforms in Argentina

Abstract

In December 2023, Argentina entered a new economic chapter under President Javier Milei, who initiated sweeping reforms to combat hyperinflation, fiscal deficits and rising poverty. This thesis evaluates the short-term macroeconomic effects of Milei’s reform agenda and assesses Argentina’s likely trajectory ahead of the pivotal 2025 midterm elections. Using a structural Vector Autoregression (VAR) model, the analysis isolates the effects of key policy interventions, including fiscal austerity, monetary tightening, deregulation and partial currency liberalization on inflation, unemployment, real wages, poverty and GDP. Counterfactual simulations estimate how these indicators would have evolved absent Milei’s reforms, providing a causal interpretation of observed macroeconomic changes in 2024. The results suggest that the reform package contributed to a sharp decrease in inflation and a primary fiscal surplus, but with adverse short-run effects on real wages and poverty. The effects on employment were more muted, with mixed signals across quarters. The VAR model is also used to forecast macroeconomic conditions into late 2025, offering insights into voter sentiment ahead of the elections. While the government has prioritized stability to sustain early gains, the outlook remains fragile. If real incomes and growth fail to recover meaningfully, public support may erode, constraining future reforms. This thesis contributes to the literature on political economy and shock therapy by highlighting the tradeoffs between rapid liberalization and political sustainability in emerging democracies.