Argentina’s Rocky Road to Economic Freedom

The ascent to power in Argentina of an avowed libertarian, in the person of Javier Milei, was seen not only with excitement by many libertarians but also as a moment of truth. Not only did it show that it was possible to get a majority of the electorate of a large country to vote for a radical agenda of freedom, but it also suggested that libertarians might finally be able to show the entire world that the unhampered free market is not only possible, but also highly beneficial for society.

It is not surprising, therefore, that both libertarians and statists are looking closely at this latest Argentinian experiment, which began early 2024, for signs of Milei’s success, or respectively, failure. Libertarians should feel comfortable with this expectation, considering the solid theoretical foundation of the Austrian school of economics that inspires Milei.

There are a couple caveats, however, that need to be made in this respect. Firstly, the difficult transition from a statist society to a free society should not be disregarded and cannot be blamed on libertarianism itself. It must be said that the practical, political process of getting to an unhampered free market has not been a main focus of libertarian thought. Secondly, the road to freedom could be obstructed, for any number of practical reasons, such as external or human factors, wholly unconnected to libertarianism. For instance, the elected leader and the government could be flawed and the political class could resist change.

Generally Positive Results After a Rocky Start

It’s been a turbulent start for Milei’s administration, with quick positive results of reforms, but accompanied by the expected difficulties in the transition away a high-tax, spendthrift, and inflationary economy. Price inflation, one of the main scourges of Argentinians for decades, decelerated markedly. For 2024, GDP contracted –1.8 %, which was better than in 2023 (-3.1%), and a strong GDP rebound is projected for 2025 (5.2%). Because of cuts to public spending, in August 2025, the Argentinian state had a budget surplus of 1.3% of GDP, which is an unprecedented turnaround for a country accustomed to spending more than it earns.

But the austerity measures (cuts in subsidies, public sector job reductions, large devaluations) inevitably brought social costs, initially plunging millions into poverty. Yet, the poverty rate then fell sharply in second half of 2024, dropping from 52.9% in the first half of 2024 to 38.1%. Unemployment in Buenos Aires Province climbed to 9.8%, higher than 2023.

Generally, macro-economic indicators are pointing in the right direction despite the inevitable and expected rocky start. However, Milei’s most serious battle probably concerns the Argentinian peso, an area where Austrian economics could be the guiding light to avoiding repeating past errors.

The Argentinian Peso: A Story of Mismanagement

In 1991, Argentina pegged the peso to U.S. dollar at a one-to-one rate. Every peso had to be backed by an equivalent U.S. dollar held in reserves. Initially, price inflation collapsed, and investment surged. But by surrendering monetary sovereignty, Argentina lost the ability to adjust to global conditions. As the U.S. dollar strengthened in the late 1990s, the peso became overvalued, hurting exports and fueling unemployment. Unable to devalue or set its own interest rates, the government borrowed heavily in dollars, deepening future vulnerabilities.

By 2001, Argentina was in recession. As investors fled and reserves dwindled, the government froze bank withdrawals to stop capital flight. Riots erupted, the government defaulted on over $100 billion of debt, and the peg was abandoned in 2002. The peso lost about 70% of its value within months, with the social consequences that can be imagined. After the collapse, Argentina adopted a floating exchange rate. But initial gains faded quickly as fiscal indiscipline returned; chronic price inflation above 30% became normal, multiple exchange rates emerged, and confidence fell.

With Milei, the peso was initially devalued significantly (from roughly 400 ARS/USD to ~800 ARS/USD) as part of the efforts to reduce price inflation. By April 2025, the government moved into a more flexible exchange-rate regime: the peso was allowed to float within a currency band (e.g., between ~1,000–1,400 ARS/USD) and many capital/currency controls were removed.

By late 2025, Argentina operated a “managed” float of its currency. The official exchange rate is roughly ARS 1,480 per USD, while the informal “blue dollar” rate at around ARS 1,580. The main risk is that the peso cannot be easily defended in this transition phase, with net central bank reserves only at USD 6 billion. This is the main reason Argentina received a stabilization fund of an additional USD 20 billion from the US in October 2025, which also contributed to an important midterm election win for Milei.

But the peso is still over-valued, hurting exports and competitiveness. For example, Argentinians have bought brand-name whiteware and beef, a flagship Argentine export, from abroad, which, due to the peso rate, are cheaper than their local equivalents.

Yet, Milei’s plan for the peso is not simply to let the peso float freely but even to abolish the central bank and let the market set interest rates, as Austrian theory recommends. This is yet a reminder that the transition to a free-market economy is a process, which therefore must consider politics.

Lessons from the Austrian School

From an Austrian economics viewpoint, Argentina’s repeated crises in the past are the inevitable consequences of artificial monetary manipulation. As Ludwig von Mises wrote in Human Action (1949): “an expansion results in misinvestment of capital and overconsumption. It leaves the nation as a whole poorer, not richer. Continued inflation must finally end in the crack-up boom, the complete breakdown of the currency system.” For Argentina, those words remain important to remember.

The 1991-dollar peg was a form of artificial monetary control. By fixing the exchange rate, policymakers overrode the market’s natural mechanism for balancing trade, savings, and investment. When the peso became overvalued, instead of letting it depreciate, the government borrowed dollars to maintain parity - fueling a massive credit bubble.

As Mises emphasized, sound money cannot be created by decree; its value must emerge from voluntary exchange. When the state fixes prices - including the price of money - it distorts market signals and encourages unsustainable consumption and debt. Murray Rothbard echoed this point in Power and Market (1970): “price controls distort production and the allocation of resources and factors in the economy, thereby injuring again the bulk of consumers.”

From this perspective, a truly free peso - with no central-bank deciding interest rates - would inevitably bring short-term pain but also long-term balance. The currency would likely fall further against the USD, reducing living standards, yet aligning consumption with the nation’s real productive capacity. The upside is that this would boost exports and make imports more expensive, thus stimulating domestic production. 

Milei is one of very few political leaders worldwide to recognize these points above. The only real obstacle to persistent economic growth and a long-term increase in the living standards of the long-suffering Argentinian people, is the electoral cycle: will Milei and his program of real economic freedom be given a full chance; not just for two years but for an entire decade or even longer? For that is the timeframe needed for the transition to a free market economy.

If Argentina is allowed to become economically free, that would not only be an important victory for libertarianism, but also a shining inspiration for reforming countless Western nations currently floundering under neo-Keynesian statism. Milei’s success would help to convince in practice all those who still doubt, that a political program based on Austrian economics leads to long-term prosperity for all, provided the political hurdles can be overcome.